ipl-logo

Why Is Improper Revenue Recognition Important

658 Words3 Pages

Revenue recognition consists of two factors which are being realised when products are exchanged for cash and being earned when an organisation has met the requirements to get its benefits. The accrual basis requires that revenue to be recorded in the income statement in period earned and not when cash when cash is collected (Perry, n.d).
Revenue is considered the most important factor in an organisation. Auditing revenue therefore requires significant considerations. PCAOB requires auditors to assume improper revenue recognition as a purpose of fraud. Professional skepticism therefore needs to be a vital characteristic for an auditor so as to catch any errors made in recognition of revenue. Improper revenue recognition has been identified as a frequent factor in financial reporting fraud. According to accountingweb (2010) fraud generally increase during times of economic downturn and 40% of frauds arise due to improper revenue recognition practices.
Revenue recognition can be approached with regards to materiality, whether the difference is material or not. There are particular conditions that increase the risk of misstatements which includes, complex revenue transactions, sale recorded before being delivered, major sales recorded at year end.
Material misstatements due to falsified financial reporting are generally as a result of overstatement …show more content…

The U.S generally accepted accounting principles and international financial reporting standards have different standards and therefore a need arises to have a common standard for all firms. The weaknesses with the current standard often lead to different accounting for similar transactions. The current IFRS does not have sufficient guidance in revenue recognition which made it complex while the current US GAAP is more industry specific and transaction specific which lead to conflicting revenue recognition outcomes (McConnell,

Show More
Related

Groupon Inc. And Revenue Recognition Issues

1640 Words | 7 Pages

DATE: September 23, 2015 TO: Professor Stevens FROM: Briana Nguyen SUBJECT: Groupon, Inc., and Revenue Recognition Issues PURPOSE This report will explore the accounting treatment employed by Groupon, Inc. (“Groupon”) in its revenue recognition for fiscal years 2008 through 2010 as well as the first six months of 2011. Specifically, we will review the following in regard to its initial public offering (IPO) in accordance with FASB’s Accounting Standards Codification (ASC): • Revenue recognition as a primary obligor • Revenue recognition as a principal or an agent • Revision of revenue recognition on gross basis to net basis and effect on revenue and net income BACKGROUND In November of 2008, Andrew Mason, Eric Leftkofsky, and Bradley Keywell

Read More

Pension Plans: GASB Vs. FASB

740 Words | 3 Pages

The purpose is “to develop, implement, and establish standards for accounting and financial reporting activities are accurate and reliable, and the resulting financial reports are as accurate and beneficial to the end users.” The end users that are discussed in the purpose are the outside users of the financial statements. Outsider users are……

Read More

Target Corporation Executive Summary

477 Words | 2 Pages

The Target Corporation, NYSE symbol TGT, had revenues in 2015 of $72,618 million. In order for Target to transition from General Accepted Accounting Principles (GAAP) to the International Financial Reporting Standards they will first have to follow the IFRS 1, which is the First Time Adoption of International Financial Reporting Standards. The IFRS 1 is the structure pertinent to those implementing IFRS for the first time (Gornik-Tomaszewski & Sellhorn, 2010). In order to transition from GAAP to IFRS companies need to undertake three steps. Those steps include 1) Selecting an accounting practice that is in compliance with IFRS, 2) Prepare an initial IFRS statement of fiscal position, using the date of transition to IFRS as starting date, and 3) Present and disclose their first set of IFRS financial reports along with an rationalization of the conversion from GAAP to IFRS (Gornik-Tomaszewski & Sellhorn,2010).

Read More

Coax Revenue Recognition Case Study

1220 Words | 5 Pages

Also, it can be challenging since guidelines created by Financial Accounting Standards Board (FASB) are complex and are subject to interpretation. To resolve this problem, in 2014, the FASB and the International Accounting Standards Board issued their final standard ASC 606 “Revenue from Contracts with Customers”. This new standard brought many changes in the way revenue is recognized by companies. This revenue recognition standard will require consumer products entities to reassess many of their existing accounting policies and practices. Also, the timing of revenue recognition could change under the new revenue recognition standard.

Read More

Explain 5 Step Process For Revenue Recognition Under Asc 606

629 Words | 3 Pages

Some entities will be needed to make more estimates, for instance, for transactions with variable consideration. In addition, the increase in estimates and judgments is accompanied by an increase in disclosures to describe the estimation methods, inputs, and assumptions. It is required that all entities will need to update their accounting policies, procedures, and internal controls to conform to the new revenue recognition model. SCOPE [2]

Read More

Annual Report Project

1526 Words | 7 Pages

Recent events influencing (e.): Microsoft launched its first laptop computer, the Microsoft Surface Book. 5. Accounting Analysis a. Revenue & recognition policies: Revenue is defined as the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. Revenue is recognized in four situations; when persuasive evidence of an arrangement exists, when the fee is fixed or determinable, when delivery has occurred, and when collectability is probably. b.

Read More

Is The Point Of Sale Unduly Conservative Basis For The Timing Of Revenue Recognition?

1214 Words | 5 Pages

The point of sale is the most widely used basis for the timing of revenue recognition because in most cases it provides the degree of objective evidence accountants consider necessary to measure periodic business income reliably. In other words, sales transactions with outsiders represent the point in the revenue generating process when most of the uncertainty about the outcome of business activity has been alleviated. It is also at the point of sale in most cases that substantially all of the costs of generating revenues are known, and they can at this point be matched with the revenues generated to produce a reliable statement of a firm's effort and accomplishment for the period. Any attempt to measure business income before the point of

Read More

Faith Integration Research Paper

1603 Words | 7 Pages

Harvard Business School Press, Boston, MA. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2016). Accounting: Tools for Business Decision Making, 6th Edition. John Wiley &

Read More

Gb518 Week 4 Financial Accounting Essay

2292 Words | 10 Pages

Making entry in wrong class of account. For example recording of personal expenses. 5. Making entry (both debit and credit) in wrong amount. References http://www.angelfire.com/journal2/sayfol/Reading/03TrialBalance.htm http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/The%20Trial%20Balance%20and%20Errors%20in%20the%20Financial%20Reporting%20System.aspx (d) Provide examples of two transactions and examine the application of the debit and credit rule.

Read More

Essay On Pro Forma

552 Words | 3 Pages

In 2002, the SEC adopted new rules and amendments to address public companies’ disclosure or release of certain financial information that is calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles. The accrual accounting is more popular and be widely used in business world because it produces more accurate and faithful financial statements that constitute better representation of actual circumstances than its main competitors. The major weakness of accrual accounting is that there is some time issue such like the time of occurred and time of recorded would probably be different and it increases the risk of financial information and the risk of correctness. Also, the accrual accounting generally cost more to operate compared with cash accounting

Read More

New Revenue Recognition Essay

455 Words | 2 Pages

New Revenue Recognition – Five Steps You’ll Need to Know The Financial Accounting Standards Board recently issued new revenue recognition guidance effective December 15, 2017, for public companies and December 15, 2018, for private companies. The new standard will affect all entities that enter into contracts to sell or purchase goods and services. Not familiar with revenue recognition? An often-misunderstood principle, revenue recognition determines the conditions under which revenue received.

Read More

Revenue Recognition Issues

1529 Words | 7 Pages

Some revenue recognition issues related to the Company’s sources of revenue would be how they recognize and make their revenue to begin with. There revenue comes from two main sources one being from the simple task of purchasing advertising directly from SKI through their advertising website. SKI puts advertisements for other advertisers on their website. This makes it so that the advertisers can personally go to SKI’s website and buy the space to advertise. The amount an advertiser pays depends on the number of views the ad receives or on the number of clicks (depending on the type of advertisement defined in the underlying contract).

Read More

Revenue Recognition Model Paper

1005 Words | 5 Pages

Revenue Recognition Model Introduction The revenue recognition principle is vital in accounting since it helps in the determination of an accounting period as well as assessing the types of revenues and expenses that ought to be realized in an accounting period (Collings, 2015). This principle state that revenues are only recognized when they have been earned or when they are recognized or recognizable regardless of whether the cash has been received (Camfferman & Zeff, 2015). This is in contrast to cash accounting where revenues are only recognized when the cash is received irrespective of whether the goods have been sold or not. Under the principle of revenue recognition, cash for goods supplied can either be received earlier or after the obligations have been met (Collings, 2015).

Read More

Zzzz Best Company Case Study

723 Words | 3 Pages

2. AS 12.01-03 Identifying and Assessing Risks of Material Misstatement

Read More

Ethical Behavior: Case Study

1684 Words | 7 Pages

In spite of the fact that money is gotten or not gotten and the revenue are perceived when they end up plainly payable however money is paid or not paid. The two transactions will be recorded in the accounting time frame to which they relate. Thusly, the accrual concept creates a distinction between the accrual receipt of money what's more, the privilege to get money as respects revenue and real amount of money what's more, commitment to pay money as respects expenses. Money Measurement Concept: -

Read More

More about Why Is Improper Revenue Recognition Important

Related Topics

Open Document