FASB Statement of Financial Accounting Concepts (CON) 5, Recognition and Measurement in Financial Statements of Business Enterprises, set forth the historic guiding principle to revenue recognition. Pursuant to paragraph 83, for revenue to be recognized it must be (a) realized or realizable and (b) earned. Revenues are “realized” when products, goods, services, or other assets are exchanged for cash or claims to cash. They are “realizable” when related assets received or held are readily convertible to known amounts of cash or claims of cash. Revenue is “earned” when an entity has “substantially accomplished what it must do to be entitled to the benefits represented by the revenues.” SEC Staff Accounting Bulleting (SAB) 104, Revenue Recognition issued in December 2003 provided additional guidance to when revenue is realized or realizable and earned setting forth four basic criteria: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonable assured.
New Revenue Recognition Standard
In a significant step towards convergence, the FASB and IASB (“the Boards”) issued the Exposure Draft, Revenue from Contracts with Customers in 2010. The goal was to create a single joint revenue recognition standard that companies could apply consistently across industries and capital markets thereby improve financial reporting. The Boards highlighted a number of improvements in the proposed standard - removing inconsistencies, improving comparability, requiring enhanced disclosures and clarifying the accounting for contract costs. Instead of focusing on “realized/realizable” and “earned” the Exposure D...
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...nd simply wait until revenue is collected. Revenue recognition has been uncoupled from the matching principle. *Conclusions – i.e. could become very judgemental, company confusion, check PwC and other info for concerns).
This new standard represents a signification milestone in the convergence process and how revenue is not recognized. Instead of trying to match costs and revenues or determine when revenue is “earned” the new standards focus on performance and control. (use PwC info)
*Notes – input more info on comments at first and second draft. Add in more detailed info about each step. Commentors conclusions (per conference and any online but note still early) and personal comments.
IASB/FASB Proposal
History – first ED, second, ED, final, comments – either at end of each section or summarize at end, see both IFRS and FASB
Current thoughts – us, auditors, etc
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
...-based, charge-based, and contractual payment systems. (p. 7). CRC Press. Retrieved from http://books.google.com/books?id=sCzhN9HruM0C&dq=fee schedule based payment&source=gbs_navlinks_s
3. Which of the following is not normally a condition that must be met for revenue to be recognized
Plunkett, Linda M., and Robert W. Rouse. "Revenue Recognition and the Bausch and Lomb Case." CPA Journal Sept. 1998: n. pag. CPA Journal. Web. 16 May 2014.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
... standard and help to reduce the preparer cost. And it has also enhanced the financial statements decision usefulness and make the organization prepare for expanded disclosure requirements.
will be included in each specific paragraph. This will help to avoid getting off of the subject and
6. The purpose is to emphasize those comments and make the readers pay clear attention to them. Orwells adds details to precise or give an explanation about the
Some revenue models are used in multiple businesses. Travel Network primarily employs the transaction revenue model. Airline and Hospitality Solutions primarily employs the SaaS and hosted and professional service fees revenue models, as well as the software licensing fee model to a lesser extent. Contracts with the same customer which are entered into at or around the same period are analyzed for revenue recognition purposes on a combined basis across our businesses which can impact our revenue recognized. Flexibility Property and equipment are stated at cost less accumulated depreciation and amortization, which is calculated on the straight-line basis.
3. The conclusion starts with a summary of the specific points of your essay, followed by a restatement of your
Do you like our idea? What do you like about it? 3. Wrap-up and final thoughts: Summarize Review
Even though it was not mentioned in the Summary of Statement No. 157 by FASB, it could be said that both U.S. GAAP and IFRS relate to Objective No. 4. This objective looks to assess an entity’s prospects for future net cash inflows, exiting and potential investors, lenders, and other creditors need information about the resources of the entity, claims against the entity, and how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s resources (Financial Accounting Foundation, 2010, para. 4). If the end user reviews the footnotes to see a hierarchy of Level Three is needed to price an asset or liability, this should be a flag for closer inspection on why this is needed and to confirm what investments the company is actually getting into.
To agree with ‘the notion that uniform standards alone will produce uniform financial reporting seems naïve’, first of all, uniform standard IFRS is described which is being widely used across the globe. After that, I discussed about what we really mean by uniformity, benefits of uniform standards and effectiveness of regulators. Lastly, reasons of not having uniform reporting despite of having uniform standards are explained.