Iasb, Uk Gaap and Ifrs

“The establishment of a comprehensive and effective standard for revenue recognition is a major challenge for accounting regulators.”

Discuss the above statement in the light of accounting issues and problems in this area, previous attempts at regulation in UK GAAP and IFRS (IAS) and work currently underway by the IASB.

Deadline: Tuesday 8th December, 2009
Seminar Tutor:
Word count (excluding title and references): 2378

Revenue earning continues to be an important metric for measuring the performance of companies, and performance against quarterly and annual revenue targets can have major implications on the valuation of a company.

The concept of revenue recognition can be a complex issue and in recent years has been the subject of some high profile accounting restatements, particularly in the United Kingdom and the United States. Unquestionably, there can be a temptation to manipulate revenue for various reasons and it is for this reason that standard setters are particularly keen on the principles of revenue recognition. Also, there can sometimes be considerable tax implications if revenue is inappropriately recognised or if it is deferred inappropriately.

When considering a publishing from Deloitte, 2005, it has been suggested that across both sides of the Atlantic accounting standard setters have followed four basic principles in their way of recognising revenue (Cassin, 2005: p2). It outlines what is provided to the customers for how much and when. The principles are shown below:

Figure 1 - Table 1.0 – Basic principles of revenue recognition

Principles | Considerations |
Evidence of an arrangement |     * Signed contract/purchase order in place   * Length of service period   * Recognition of commission or principle |
Delivery |     * Evidence of delivery   * Customer acceptance   * Client has access to the goods or service |
Fixed or determinable fee |     * Contingent fee arrangement   * Fee based on number of users   *...