Proposed Revenue Recognition Revenue From Contracts With Customer By The Financial Accounting Standards Board

Proposed Revenue Recognition Revenue From Contracts With Customer By The Financial Accounting Standards Board

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The purpose of this paper is to comprehend how the proposed Revenue Recognition-Revenue from contracts with customer 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 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.
BACKGROUND HISTORY
Revenue recognition is currently one of the most complex areas of accounting, however it hasn’t always been this way. From relatively simple beginnings, the guidance for recognizing revenue has grown larger and more complex along with the business environment. One reason revenue recognition has needed frequent improvement is its vulnerability to fraud. It has been recorded that several frauds during the 1987-2007 time period were a result of an overstatements of revenue, typically at the end of an accounting period in an effort to boost earnings. This fact shows the importance of rigorous revenue recognition guidelines, while further demonstrating a need for the revenue recognition project. There was also a need to clarify the differences in the US GAAP and IFRS standards, particularly where investors have the need to compare companies’ financial performance across the world. The bodies governing accounting practices historically, such as Financial Accounting Standards Board (FASB), the Accounting Principles Board and Security Exchange Commission (SEC), have issued many publications in an attempt to ensure accuracy in revenue r...


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...guidance for service activities are for these situations: ‘Separately Priced Extended Warranty and Product Maintenance Contracts’, ‘Commissions from Experience-Rated or Retrospective Insurance Arrangements’, ‘Fees for Guaranteeing a Loan’, ‘Services for Freight- in-Transit at the End of a Reporting Period’ Advertising Barter Services’ and ‘long term Power Sales Contracts’ (FASB.org). The remainder of service activities must rely on general principles in order to determine revenue recognition. 4) Revenue recognition is a primary source of restatements because of application errors and fraud; Figure 1 below demonstrates that revenue recognition is the second most frequent reason for companies restating their financials. 5) The last reason is that revenue data are highly aggregated, and users say they would like more details about specific revenue-generating activities.

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