Revenue recognition
Statement Four
Revenue recognition issues top the list of reasons for financial reporting restatements and one of the methods for creative accounting practices.
Table of Contents
Table of Contents 1
Introduction 3
Literature Review 4
Revenue recognition 4
Sale of goods 4
Rendering of services 5
Interest, royalties, and dividends 5
Creative Accounting 5
To meet internal targets 6
Meet external expectations. 6
Provide income smoothing. 6
Taxation 6
Change in management 6
Revenue Recognition as method for Creative accounting practices 7
Common revenue Manipulations 7
Channel Stuffing 7
Multiple element arrangements, 8
Side letters or agreement 8
Bill and hold arrangements, 8
Backdated Contracts 8
Genuine Transaction 9
Fictitious Transactions 9
Practical Example 9
Group Discussion Regarding Revenue Recognition 10
Conclusion 11
REFERENCE 13
Introduction
The study has been conducted to have a view on Revenue Recognition and how is important for entities in financial reporting and the link between revenue recognition and creative accounting. The primary issue in accounting for revenue is to determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. There are identifiable criteria to be met and for revenue to be recognized. By definition, Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.
The entities revenue may be arising from the transactions and events, such as the sale of goods; the rendering of services; and the use by others of entity assets yielding interest, royalties and dividends.
The recognition criteria usually applied separately to each transaction. However, in certain
Revenue recognition issues top the list of reasons for financial reporting restatements and one of the methods for creative accounting practices.
Table of Contents
Table of Contents 1
Introduction 3
Literature Review 4
Revenue recognition 4
Sale of goods 4
Rendering of services 5
Interest, royalties, and dividends 5
Creative Accounting 5
To meet internal targets 6
Meet external expectations. 6
Provide income smoothing. 6
Taxation 6
Change in management 6
Revenue Recognition as method for Creative accounting practices 7
Common revenue Manipulations 7
Channel Stuffing 7
Multiple element arrangements, 8
Side letters or agreement 8
Bill and hold arrangements, 8
Backdated Contracts 8
Genuine Transaction 9
Fictitious Transactions 9
Practical Example 9
Group Discussion Regarding Revenue Recognition 10
Conclusion 11
REFERENCE 13
Introduction
The study has been conducted to have a view on Revenue Recognition and how is important for entities in financial reporting and the link between revenue recognition and creative accounting. The primary issue in accounting for revenue is to determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. There are identifiable criteria to be met and for revenue to be recognized. By definition, Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.
The entities revenue may be arising from the transactions and events, such as the sale of goods; the rendering of services; and the use by others of entity assets yielding interest, royalties and dividends.
The recognition criteria usually applied separately to each transaction. However, in certain