The Implementation Of The New Standard Rule

Revenue recognition is one of the top causes for financial statement restatements. In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process. Furthermore, revenue recognition is often prey to financial fraud.

Revenue is the gross inflow of economic benefits during the period arising in the ordinary course of activities. Revenue should be recognized when the future economic benefits that will flow to the entity can be measured reliably. The new standard will significantly change how companies recognize revenue. It creates a whole new codification in a new era of revenue recognition by replacing hundreds of pages of guidance that are specific for each industry to a single comprehensive standard applicable to virtually all industries. The recognition criteria are usually applied separately to each transaction, but sometimes and under specific circumstances, it is necessary to apply the recognition criteria to the separate recognizable parts or of a single transaction in order to reflect the substance of the transaction. In aviation industry, the revenue transaction or events takes a significant period of time in order to complete because of the nature of product delivering against the sum of money. The five‐step revenue recognition process for this transaction are as follows:

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

In 1973, the Financial Accounting Standards Board (FASB) was created and their mission is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.” (FASB.org, 2009a). The FASB is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. Therefore, the FASB plays a vital and important role in protecting the financial well being and the overall stability of our

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

According to Kimmel, Kieso and Waygandt (2011), "the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned." Basically, this means that revenues should be recognized (or in other words recorded) on completion of the process of revenue generation i.e. once revenue has been earned. This is as per the accrual basis of accounting. Essentially, revenue recognition derives its significance from its utilization when it comes to the determination of the specific accounting period in which earnings should be recorded.

Therefore, the author made a Hypothesis: Ceteris paribus, reported revenue under early revenue recognition is more timely in providing economic information than that under SOP 91-1. An efficient stock market impounds value-relevant information of economic transactions in a quick and unbiased fashion. The author tried to find the relationship between reported revenue and stock return to prove the hypothesis by employing reverse regression methodology. After analysis of data, the author’s conclusion is that early revenue recognition increases the timeliness.

This assignment features the recognition and measurement of revenue depending on the source of revenue in accordance with the provisions of International Accounting Standards (IAS) 18 Revenue.

The revenue recognition principle is a foundation of accrual accounting and one of the main principles of GAAP. The revenue recognition principle is a set of guidelines that helps accountants to identify when a revenue event has taken place and how to appropriately record cash exchanges before, during, and after the revenue event. According to the revenue recognition principal, revenue must (1) be realized or realizable and (2) earned, in order to be recognized. According to the SEC revenue is realized when (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) Collectability is reasonably assured. It is essential

We are all familiar with the basic revenue recognition rule: revenue should generally be recognized when it is realized or realizable and when it is earned. Although seemingly simple, that rule can be difficult to apply, particularly in rapidly evolving high-tech industries. Revenue recognition within the software industry has been a complex and controversial issue since the inception of that industry during the latter part of the twentieth century. The FASB addressed that issue at length in Statement of Position 97-2 (pre-codification GAAP), which was released in October 1997. A more general discussion of revenue recognition can be found in the SEC’s Staff Accounting Bulletin No. 101 that was issued in December 1999.

The following accounting and communication changes are recommended to the Oracle Board of Directors to accurately recognize revenue in accordance to actual business performance and common industry practice:

1 This Standard shall be applied in accounting for revenue arising from the following transactions and events: (a) (b) (c) 2 3 4 the sale of goods; the rendering of services; and the use by others of entity assets yielding interest, royalties and dividends.