Question

Based on your understanding of the different types of classification for debt and equity securities, do you feel that the fair value accounting shift is appropriate?

How strong of an impact do you think the changing revenue recognition standard will have on the financial performance of organizations dependent on contractual based revenues, and why?

Answer 1

FAIR VALUE ACCOUNTING USES CURRENT MARKET VALUES FOR RECOGNIZING CERTAIN ASSETS AND LIABILITIES. SO I THINK IT IS MORE IMPORTANT IN FINANCIAL ACCOUNTING. IT MAKES ACCOUNTING INFORMATION MORE RELEVANT.

REVENUE RECOGNITION STANDARD IS THAT AN ENTITY SHOULD RECOGNIZE REVENUE FROM THE TRANSFER OF GOODS OR SERVICES TO CUSTOMERS. THE ADOPTION OF NEW REVENUE RECOGNITION STANDARD SHOULD NOT HAVE AN IMPACT ON ANY ENTITY'S FAIR VALUE. CAREFUL CONSIDERATION NEEDS TO BE GIVEN TO THE INPUTS INTO THE VALUATION. REVENUE EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (EBITDA), MULTIPLE APPROACHES ARE A CORE COMPONENT OF THE MARKET APPROACH TO VALUATION. IN ADDITION TO THE MARKET APPROACH THERE IS ALSO POTENTIAL IMPACT TO INCOME APPROACH. ADDITIONALLY, VALUATION MODELS MUST CONSIDER HOW THIS DEFFERRED REVENUE ADJUSTMENT SHOULD IMPACT FORECASTED REVENUES. IF WE CONSIDER A GOOD REVENUE RECOGNITION STANDARD , IT WILL GIVE GOOD RESULT IN FINANCIAL PERFORMANCE OF THE ORGANIZATION.