Free Sample: International Financial Reporting Standards and Revenue paper example for writing essay

International Financial Reporting Standards and Revenue - Essay Example

The following ill discuss revenue recognition as it stands under U. S. GAP and FIRS, as well as proposed changes to the revenue recognition principle. Revenue Recognition under U. S. GAP Staff Accounting Bulletin, Topic 13 states, “The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met: 1. Persuasive evidence of an arrangement exists; 2. Deliver has occurred or services have been rendered; 3. The seller’s price to the buyer is fixed or determinable; and 4. Collegiality is reasonably assured. ”

Revenue recognition under U. S. GAP can vary depending on industry, but the criteria listed by Topic 13 are generally applied when recognizing revenue. Guidance for industry specific principles are covered under other U. S. GAP pronouncements. Also under U. S. GAP, “any costs or losses that may be expected in connection with any returns shall be accrued in accordance with FAST SST. No. 5 Accounting for Contingencies. Sales revenue and costs of sales reported in the income statement shall be reduced to reflect estimated returns” (FAST 48 par. 7). Revenue Recognition under FIRS

Under FIRS, guidance regarding revenue recognition are governed under two general accounting standards. According to FIRS, “revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably’ (AS 18). Revenue Recognition for specific industries are not addressed under FIRS and these two general accounting standards are applied broadly across various industries. Revenue recognition has been at the forefront of suggested changes regarding convergence to a single set of standards for financial reporting and accounting.

Currently under U. S. GAP, revenue recognition have more stringent criteria and governance can also be industry specific. FIRS differs in that there are only two broadly applied accounting standards when determining when to recognize revenue. The CPA has announced that the SAAB and FAST will move towards issuing a single standard governing revenue recognition. The proposed standard will adopt standards similar to FIRS revenue recognition principles and eliminate U. S. Gaps industry specific guidance. The changes will have a tremendous effect on accounting and how businesses operate.