Accounting Case Study

Topics: Generally Accepted Accounting Principles, Deferral, Vendor Specific Objective Evidence Pages: 3 (395 words) Published: April 8, 2013
Accounting Case study
The financial statements regarding the disclosures
of the significant
changes in
accounting are
not appropriate
and adequate in real
terms. This is because according to the provisions of the statement of position No. 97 -
2, software revenue recognition a four
part conjunctive
must be attained. One of the elements of this conju
ctive test is
the compulsory
ence of
This is in regard to paragraph 17 which states that even if all other requirements for revenue recognition are met, revenue
should be
recognized as persuasive evidence of an arrangement exists.
In the case of upstream persuasi
ve evidence of contract
does not
exist as there is no
objective and
specific post
contract customer support.
Another conju
ctive element that must be met is the fact that the vendor’s ( up
must be fixed or
determinable for
recognition to be
n the case of upstream it is quite evident that there was
no vendor specific
evidence of fair
value of the PCS on a
basis. This further ma
kes the financial treatments inappropriate
as this would lead to
such as extended p
ayment or the
right to cancellation of software contracts.
Therefore, to avert this it is prudent to include a
fixed price in order for this conjunctive
to be met
The recognition of revenue on straight line basis in the
case is also not appropriate. This is because there is no existence of vendor specific objective in this contract. According to the provisions of the modification of SOP 97 -
2 in AICPA statement of position
no 98
residual method must exist as there
is evidence of undelivered elements and therefore revenue recognition should be deferred
. In this case the
residual method should be adopted for revenue recognition.
ISA 220 defines an engagement partner as “the partner or other person in the firm who...
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