Revenue Under The Aasb 15, Must Be Recognised In A Style

Revenue recognition accounting standard ensures the correct revenue is recorded for each period of the income statement, it was previously based on the realization principle - requires revenue to be recognized when the earning process is virtually complete and is certain to collectability. FASB & IASB developed a new revenue recognition standard, Revenue from Contracts with Customers,” on May 28, 2014, ASU No 2014-09. (RRPA Revenue Recognition and Profitability Analysis-1-LO1-5).

In 1973 the Financial Accounting Standards Board (FASB) was established to set the financial accounting standards in the United States of America for nongovernmental entities. These standards are collectively called U.S. Generally accepted Accounting Principles, or U.S. GAAP. The Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants acknowledge the authority of these standards (FASB, n.d). A “proven, independent due process” is used to collect the viewpoints of the financial statements prepares and users for the constant improvement of these standards. An Accounting Status Update(ASU) is not an authoritative source however documents the amendments to communicate the changes in the FASB Codification for a user to understand the reason and future of those changes (FASB, n.d).

SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the

In 2018 it will be mandatory that AASB111 and AASB108 are replaced by AASB15. This new standards main principle necessitates entities to recognise revenue to portray the transfer of goods or services to customers in amounts that mirror the payment, of which the company expects to be entitled. AASB15 also provides regulation for transactions that were not previously addressed thoroughly, such as service revenue and contract modifications. Essentially it presents a 5 step system of Identifying the contracts with the customer, identifying the separate performance obligations in the contract, determining the transaction price, allocating the transaction price to certain performance obligations and recognizing revenue when or as the entity fulfils performance obligations – This is demonstrated towards the end of the report with a

As the business environment grows and companies find new ways to expand into their respective - or even new – markets, it is important that reporting standards stay up to date with changes and continue to assist companies in providing their users with useful accounting information. Information is labelled as being useful when it meets the

The Codification’s goal is to clarify the company of thousands of U.S. authoritative accounting announcements published by diverse standard-setters. Therefore, to accomplish this objective, the FASB sponsored a project to incorporate and typically adapt all related accounting publication announced by the standard-setters of the U.S. in conjunction with those of the FASB, the Emerging Issues Task Force (EITF) and the American Institute of Certified Public Accountants

This week I learnt that prepaid future service would be listed as unearned revenue as a debit and revenue must be credited on the income statement. Also, the generally accepted accounting principle (GAAP) is an accounting

117,” n.d.). These guidelines have been established to provide consistency in reporting and transparency in financial processes.

IASB. 2010, "The Conceptual Framework for Financial Reporting" IFRS, pp. A21- A38, viewed 23 April 2014,

Step 3: Determine the transaction price (this is the amount the entity expects to be entitled to under the contract).

As many know revenue is the amount of money that a company receives during a specific period/time. However revenue recognition is slightly different, it is an accounting principle under GAAP that determines the specific conditions of when revenue is recognized or accounted for. Since many believe that the standard was in need for improvement, on August 12, 2015 the FASB issued an Accounting Standards Update. The update based on the board’s decision decided that public organizations should apply the new revenue recognition to annual reports beginning after December 15, 2017. It is said that the new standard is major achievement for the Boards’ in improving this financial standard. The purpose of the new standard is to establish principles

Diversification of revenue recognition practices have arisen due to AASB 118 and 111 providing insufficient guidance, consequently repeatedly leading to different accounting arrangements for similar transaction, such as a multiple line elements. Accordingly, the limited guidance provided, fosters a sense of uncertainty among prepares of financial statements and difficultly in application of standards to complex transactions. Thus, consultation was undertaken internationally/domestically by the IASB and the AASB to rectify inconsistences/weaknesses with standards. Accordingly AASB 15 was issued intending to facilitate a single recognition framework for all contracts with

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

By proposing the changes, IASB seeks to remove discrepancies and weaknesses in previous revenue recognition standards by providing concise principles for revenue recognition in a more robust framework. This increases the accuracy of the numbers reflected in financial statements, which give the users a better evaluation of the company’s performance and prospects. IASB also seeks to improve comparability between industries, companies, jurisdictions and capital markets by providing a single revenue recognition model those companies can seek guidance from. Improved comparability allows users of financial statements to compare

The Framework is also of value to auditors, and the users of financial statements, and more generally help interested parties to understand the IASB’s approach to the formulation of an accounting standard. The content of the Framework can be summarised as follows: • Identifying the objective of financial statements • The reporting entity (to be issued) • Identifying the parties that use financial statements • The qualitative characteristics that make financial statements useful • The remaining text of the old Framework dealing with elements of financial statements: assets, liabilities equity income and expenses and