Iasb & Fasb Joint Project on Revenue Recognition
AFW3040 Assignment 1
Recently in June 2010, the International Accounting Standards Board and the Financial Accounting Standard Board initiated a joint project and released an exposure draft named Revenue from Contracts with Customers. This exposure draft emphasizes the status of revenue in assessing financial statements and states that revenue is conclusive in assessing a company’s operating situation and developing prospects. This statement has a profound influence on accounting industry and has lead to a wide range of comments and criticizes. The purpose of this essay is to discuss the above statement by using some theories of accounting. The essay will focus on the issue of revenue recognition and its relationship with accounting theory. The discussions are based on the context of conceptual framework.
It is widely recognized that revenue is one of the most important items in financial statements and that revenue recognition is one of the most difficult issues that standard-setters and accountants have to deal with (FASB, 2002). There exist a variety of reasons for the emergence of the IASB-FASB joint project on revenue recognition. The most essential reason is, as stated in the exposure, that revenue recognition requirements in US Generally Accepted Accounting Principles (GAAP) differ from those in International Financial Reporting Standards (IFRS). Opponents of the IASB’s preferred single comprehensive income statement, many of whom are preparers of accounts, are afraid that comprehensive income/revenue, possibly based substantially on fair value measurement, will become the central figure for performance evaluation (Cauwenberge & Beedle, 2007). From the IASB’s perspective the main objectives of the project are the elimination of inconsistencies within existing IFRS revenue recognition and between existing revenue recognition criteria and the definition of assets and liabilities in the IASB Framework (IASB, 2002). From the FASB’s perspective, the
Recently in June 2010, the International Accounting Standards Board and the Financial Accounting Standard Board initiated a joint project and released an exposure draft named Revenue from Contracts with Customers. This exposure draft emphasizes the status of revenue in assessing financial statements and states that revenue is conclusive in assessing a company’s operating situation and developing prospects. This statement has a profound influence on accounting industry and has lead to a wide range of comments and criticizes. The purpose of this essay is to discuss the above statement by using some theories of accounting. The essay will focus on the issue of revenue recognition and its relationship with accounting theory. The discussions are based on the context of conceptual framework.
It is widely recognized that revenue is one of the most important items in financial statements and that revenue recognition is one of the most difficult issues that standard-setters and accountants have to deal with (FASB, 2002). There exist a variety of reasons for the emergence of the IASB-FASB joint project on revenue recognition. The most essential reason is, as stated in the exposure, that revenue recognition requirements in US Generally Accepted Accounting Principles (GAAP) differ from those in International Financial Reporting Standards (IFRS). Opponents of the IASB’s preferred single comprehensive income statement, many of whom are preparers of accounts, are afraid that comprehensive income/revenue, possibly based substantially on fair value measurement, will become the central figure for performance evaluation (Cauwenberge & Beedle, 2007). From the IASB’s perspective the main objectives of the project are the elimination of inconsistencies within existing IFRS revenue recognition and between existing revenue recognition criteria and the definition of assets and liabilities in the IASB Framework (IASB, 2002). From the FASB’s perspective, the