The Implementation Of New Revenue Recognition Essay

The Implementation Of New Revenue Recognition Essay

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This paper focuses on one area critical to all organizations – Revenue Recognition. The purpose of this paper is to better understand how the proposed Revenue Recognition-Revenue from contracts with customer principles by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) will impact different industries and their financial reporting. Finally, the implementation of new revenue recognition standards will have meaningful implications for both historical and future reporting. At the end of this paper, the reader will have a better understanding of the new revenue recognition principles and the effect it will have upon financial reporting in the United States.
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.









BACKGROUND HISTORY
Current Status
GAAP and Current standards involved
Proposed changes
The new model employs an asset and liability approach, the cornerstone of the FASB’s and IASB’s conceptual frameworks. Curre...


... middle of paper ...


...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.”
Construction Contracts
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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