Question

New Approaches to Revenue Recognitions Must include the following:

-Suggested changes or problem areas revealed in the debate arena.

-Analyze points 2 and 3 in relation to the Conceptual Framework (include qualitative characteristics of useful information).

-Suggest appropriate courses of action.

-Provide a biblical application, supported by Scripture, with respect to your topic.

Respond the 4 question about the Revenue Recognition.

Answer 1

ABSTRACT

This paper is a research work relating to of US GAAP and IFRS in respect to revenue recognition. Various facts has been from books published by intellectuals in the field of accounts. This paper focuses mainly the issue of IFRS and GAAP. The Financial Accounting Standards Board (FASB) created the United Generally Accepted Principles (GAAP) has been operational in US corporations for 70 years. It permits statements from all corporations to be compared precisely as well proficiently, and as a rule for accountants. GAAP is gradually being drawn away for the International Reporting Standards (IFRS) as business goes transversely through the world. GAAP applies merely financial reporting in US. in addition to the international rules close similarity.

INTRODUCTION

The discrepancy between GGAP IFRS can show the to a financial statement user to judge the wrong way that a corporation A made more than corporation B for reason that they report using dissimilar rules. The disparity between and IFRS is the way of valuation. In this case, GAAP permits accountants to use First-in first-, Last-in First-out, and weighted. Under IFRS, LIFO is not permitted. If United States corporations are to change to LIFO under a accounting standard, they will have outsized increases in. The exercise of LIFO them to keep away from larger income taxes in times of rises. An additional illustration of diverse procedures between IFRS as well as GAAP is in the of intangibles.

Understanding past

GAAP focuses more often recording them at a set, furthermore amortizing that value over the total of useful life of such. IFRS pressures stable re- of the price, plus recognition at the fair value of intangible's (Miska). One of supreme benefits of IFRS is the fact that the International Accounting Standards (IASB) and the Securities Commission (SEC) would be working mutually to develop best, most efficient principles.

Norwalk

This roadmap sets up guidelines to support the Boards to high-quality, common standards that all differences between the two given systems, and substitutes weaker standards with stronger ones.

In the short span of time, both the will work and jointly on certain factors that are established in need of improvement, including the use of value as a option to value the tangible assets. Other areas include research and, subsequent events, tax, borrowing costs, government grants, joint ventures and segment. {Nach, and Bragg, 2009}

All Projects between and FASB, including a project to a common conceptual framework where one of U.S. GAAP or IFRS is considered best solution is selected - Short-term projects are made.

Convergence research where FASB seeks to point out variance between U.S. GAAP and IFRS

FASB and IASB consulted the U.S. Securities and Commission (SEC) and the European Commission (EC) in 11 long-term convergence projects include {Accounting Standard Codification} :-

1. Business

2. Fair value guidance

3. Liabilities equity distinctions,

4. Performance

5. Post-retirement,

6. Revenue,

7. assets,

8. Financials,

9. Intangible assets leases.

Generally Accepted accounting basically the principle, which was made, on the basis of which accounts are prepared. These are applied in different in different countries. On the other hand the International financial reporting is the common platform under the presentation of accounting records will take place. This would ensure understanding of worldwide. This would benefit by same language, cross border, better taxing evaluations, and lesser administrative cost better comparison.     Basically we are now towards IFRS because of advantage.

Over a decade ago, it was that the whole world would likely the Generally Accepted Accounting Principles (GAAP). At the point in time, the Financial reporting (IFRS) was only about ten years old. In the last decade, the IFRS has been in many growing countries. Currently, it anticipated that the U.S. will it’s GAAP with the international, leaving behind only a modified IFRS. This may occur as 2014. {Deloitte 2008}

RECOGNITION OF UNDER US GAAP

There is abundance specific guidance for different and the major point that stress to companies is to ensure they ascertain which they are within the of – if get it wrong and one easily move down the wrong path.

For all industries, 4 key are:

- There should be Persuasive of arrangement

- There should be actual to buyer or work done

- Certain Fixed and sales price must be recognized

- It should make sure about A firm using reporting should one party to any contract under US GAAP, on both and risk of credit, choose its suppliers, and should the ability to set price.

Sales-basis Method

Under this method, recognition revenue is made at the time sale that is defined as the time when the title of the goods moves. It can be in cash or credit. This means, under this method, if cash is received before the is revenue is not recognized. (Gibson, S.C 2008)

Implication: This is accurate of revenue recognition.

Percentage-of- method

For construction and companies, who may take more 1 year to deliver a product to a customer this method very popular

Under this method revenue and can be recognized even though project itself is not yet complete.

A company will use this method revenue recognition if two conditions are met:

- There is a long-term enforceable contract

- Estimation of the of the project that is complete, its revenues its costs is possible. (Gibson, S.C 2008)

Two ways for revenue can

Using milestones - A number of stories, or a of miles built for a railway.

Cost incurred to total cost- Using this method, will be recognized by comparing the cost incurred to given date estimated total cost.

Implication: This may revenues and gross profits if the expenditure contribute to completed work are recognized.

Completed- method

- Under this method, at end of the contract, revenues and are recorded. When two basic conditions needed to use percentage-of-completion are not met (there is no long-term legally enforceable and/or Estimation of the of the project that is complete, its revenues and costs is not possible) this method is. (Gibson, S.C 2008)

Implication: This can in understatement of revenues and gross profit a period because the contract is not for until it is completed.

Installment method

A company should use the of revenue recognition, If collections are reliable. (Gibson, S.C 2008) This is used in some real estate where the sale may be agreed upon the cash collection is subject to the risk of the buyer's falling through. As a result, gross profit is only in proportion to cash received.

For example, a company sells for $120,000 that cost $60,000. The will pay in equal installments over six months. Once the first payment received, the company record sales of $60,000, expenses of $30,000 and net profit of $30,000.

Implication: This sometimes gross profits if the last is not received.

Comparing and

Proposed method of revenue under IFRS
The proposed revenue standard target to: {Accounting Standard}

- Provide a more robust to address issues relating revenue as they arise raise comparability across markets and industries.

- Require disclosure which better so investors other users of financial statements gets better understanding of economics behind the numbers.

- Crucial number to users of statements in assessing a financial performance and position. However, recognition of requirements in U.S. generally accounting principles (GAAP) differ from those in Financial Reporting Standards (IFRSs), and both of requirements need improvement.

- Provide more useful to users of financial statements improved disclosure requirements.

- Simplify the preparation of statements by reducing the of requirements to which an entity must refer.

Accordingly, the FASB and IASB initiated a project to the principles for revenue recognition and to develop a common for revenue for U.S. GAAP and. (Coopers 2008)

The following points can brought out : (Coopers 2008)

- - Delivery of goods or can be identified only when the control gets the hands of the customer.

- Indicator of of goods:

• Right to

• Passage of title

• Physical

• Significant and rewards

• Customer.

- If purchase consideration of variable nature, then the which is “reasonably assured” by an entity can be recognized as amount of revenue. (Hughes, S Sander, J.F 2007)

- License revenue or revenues from right to use arrangement recognized when the customer actually gets control of the rights. Revenue cannot recognized prior to the period when the customer can utilize benefit from license property.

- Control of a good or service is promised for future is considered transfer to a customer over a longer period of time, hence, revenue would be over that specific period of time, if at least one condition is (otherwise, control is to transfer at a point in time). A performance obligation is satisfied time if at least one of following two criteria is met: (1) The customer actually controls the as it is created. (2) The asset has been created has no different use to the andeither (a) the benefit is by the costumer (e.g., cleaning services), (b) another entity would not have perform it again (e.g., transport), or (c) to payment has been received by entity.

Primary

We find in certain,contractual promisesareaccountedfor in a different manner.Forexample,warranties orafterservicingare accountedasacostaccrual. The proposed modelwouldprovidethat salesservicesandwill formpartofthe contractand therefore, theseshouldbeas revenue only whenaresatisfied.

Also, certain standards, a good number in the US, limit use of estimates in revenue.

The most notable ofis in the industry whereSOP 97

2Inorder toaccountforelement ofa separately, SoftwareRevenueRecognition requiresobjectiveandreliable ofaselling price. This is to say that cannot be made for the separate price of an element the contract which actually not sold separately inanmarket openly.As per the proposal, would estimate the alone selling prices of elements which are not andrecognize revenueonseparately. {Kumar, S 2002}

Capitalization of expenditure in gaining revenue on a would be allowed to be capitalized only if and they are eligible forunder other given standards. In certain industries, sales commissions to be recognized over the of a sale; however the proposed standard would such costs to beupfront. {Kumar, S 2002}

Benefits are as follows

- There are large number of for recognizing. Under the new proposal, all entities may recognize revenue in with the framework given in proposed revenue recognition standard irrelevant of industry /or geography.

- There are many goods or services are promised the term of contract with a customer are not revenue-generating, when in fact those might actually represent separate obligations of the to the customer. With given recognition standard, entities will be required to all such separate or they promise to a customer in the terms contract and recognize revenue for those promises or as each one satisfied. {Kumar, S 2002}

- The consideration received a customer is allocated to promised good or service entirely given in the contract. The proposed recognition standard, would be required to allocate the all transaction price to each the separate promises given in contract on the basis of the price estimated at which entity may sell the good or service on a standalone basis to a similar customer. {Kumar, S 2002}

Suggestions for by convergence of US GAAP into IFRS

Such converging is needed as the following {Deloitte 2008}

- Emergence of IASB one of the most standardized effective body for setting the standard,

- Increase in globalization the increase of for international investment.

- Rise in global direct and cut throat competition are driving the convergence of U.S. GAAP and IFRS.

- For same base as a of the differences between U.S GAAP and IFRS

- Rise in capital markets globe has increased the need for between U.S. GAAP and IFRS.

- Non US companies access to must initially comply with regulations of SEC, which include the need to reconcile variances between IFRS-based statements with U.S. GAAP.

As you might be proficient to tell, have their pros and cons compared to the other. There are several items in which are drawn from IFRS and rest that GAAP. There is a continuing effort to address the differences as well as to a agreement. At some point, the diverse set of rules might be combined into one system.

References

- Deloitte. IFRS: A Pocket. July 2008. IASplus.com.

- Gibson, S.C. LIFO: A to the Basics. Oct. 2008. The Journal.

- Hughes, S.B. and Sander, J.F.S. Manager’s to Differences Between and U.S. GAAP. 2007. Management Quarterly.

- Kumar, S. Differences IFRSs and US 26 July 2006. Caclubindia. Waterhouse

- Coopers. IFRS and GAAP: Similarities Differences. Sept 2008. PWC.com.

- “Accounting Codification” fasb.org December 11, 10. Web

- Nach, Ralph and GAAP 2010. New: Wiley, 2009. Print