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Revenue Recognition & Theories of Accounting

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Revenue Recognition & Theories of Accounting
Revenue Recognition & Theories of Accounting
The Joint Project
Revenue recognition requirements in US generally accepted accounting principles (GAAP) differ from those in International Financial Reporting Standards (IFRSs); the former consists of broad concepts whereas IFRSs contain fewer standards, but applying the two main standards to complex transactions were difficult and needed improvement (Australian Accounting Standards Board, 2010). Accordingly, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) initiated a joint project to clarify the revenue recognising principles and to establish a common revenue standard that would: (a) remove inconsistencies in existing standards; (b) provide a sturdier framework for addressing revenue recognition issues; (c) improve comparability across entities, industries, and capital markets; and
(d) require enhanced disclosures (IFRS Foundation, 2010).
The proposed new standard would clarify recognition, measurement and disclosure of revenue. If adopted, revenue would be recognised when goods or services, or both, are transferred to the customer (IFRS Foundation, 2011). In contrast, current approach to earning revenue is based on the income statement.

Impact of Revenue Recognition
Revenue reporting directly impacts an entity's results of operations and financial position, therefore any changes in the revenue recognition model can have a fundamental consequence on a company’s results. Accordingly, the proposed model could have a significant impact on several industries. For example, the recognition of revenue for the licence of intellectual property is dependant upon the customer obtaining control of the asset. The proposals may result in some entities recognising revenue over the term of the licence instead of upon the granting of it, thereby delaying its recognition (PricewaterhouseCoopers, 2010).

Importance of Revenue
It is


References: Australian Accounting Standards Board. (2010, July). AASB exposure draft: Revenue from contracts with customers. Retrieved 21 March, 2010, from http://www.aasb.gov.au/admin/file/content105/c9/ACCED198_07-10.pdf Chambers, R.J. (1957). Detail for a blueprint. The Accounting Review, 32(2), 206-215.
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