Question

Discuss legal control under U.S. GAAP or effective control used by IFRS.? which one is preferable for companies? & whether you prefer?

Answer 1

As per GAAP,

SAB Topic 13 indicates that revenue from the sale of goods or products should not be recognized until it is earned and realized, or realizable. Revenue is generally earned and realized, or realizable, when all of the following conditions have been satisfied:

• There is persuasive evidence of an arrangement.
• Delivery has occurred (e.g., an exchange has taken place).
• The sales price is fixed or determinable.
• Collectibility is reasonably assured.

In addition, ASC 605-15 provides guidance on product transactions that include a right of return. Further, various industry- and transaction-specific guidance is provided in other U.S. GAAP.

As per IFRS,

Under paragraph 14 of IAS 18, revenue from the sale of goods is recognized if all of the following conditions are met:

• The "entity has transferred to the buyer the significant risks and rewards of ownership of the goods."
• The "entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold."
• The "amount of revenue can be measured reliably."
• "[I]t is probable that the economic benefits associated with the transaction will flow to the entity."
• The "costs incurred or to be incurred in respect of the transaction can be measured reliably."

Thank you