This paper focuses on one area critical to all organizations – revenue recognition. We first examine the motivation for converging the criteria that must be met in order for organizations to formally recognize revenue. To explore this area, we provide a timeline of events that led to the current standards for revenue recognition for both the FASB and IASB. Next, we compare and contrast the similarities and differences in current revenue recognition standards while examining the various political environments, constraints, and pressures faced by the different standard setters. We conclude by proposing a set of revenue recognition criteria that incorporates both the FASB and IASB conceptual frameworks, but also considers economic factors, technological advances, various emerging issues, and political pressures.
GAAP and Current standards involved
The new model employs an asset and liability approach, the cornerstone of the FASB’s and IASB’s conceptual frameworks. Curre...
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...erformances has occurred. It allows you to book the delivered elements of a multiple-element contract even if a refund could be triggered, as long as each element has “commercial substance.”
The “completed contract method” is standard under GAAP; you must wait to finish construction before recognizing revenue. However, large construction projects can use the “percentage of completion method” in which your revenue matches the percentage of work completed. If you meet certain criteria, you can combine or segment construction contracts under GAAP. IFRS bans the completed contract method. It allows the percentage of completion method under certain conditions. Otherwise, you only recognize revenue on any recoverable costs you incur. IFRS also allows contracts to be combined or segmented but applies different criteria than does GAAP for this purpose.
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