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Revenue Recognition Ifrs vs Gaap

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Revenue Recognition Ifrs vs Gaap
Revenue Recognition: IFRS and FASB Convergence
With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of Sponsoring Organization of the Treadway Commission (COSO) Analysis of Fraudulent Financial Reporting 1998-2007, the most common fraud technique involved improper revenue recognition. This fact emphasizes the importance of proper revenue recognition and detailed standards in place to guide companies.
The International Accounting Standards Board (IASB) developed standard IAS 18, which defines the accounting treatment for revenue arising from certain types of transactions and events. According to IAS 18, “revenue is recognized when it is probable that future economic benefits will flow in the entity and these benefits can be measured reliably.” The development of IAS 18 began with an Exposure Draft E20 in 1981. IASB formally issued standard IAS 18 in December of 1982, but the effective date wasn’t until January 1, 1984.
In order to keep in pace with the rapidly changing business environment, IASB published another exposure draft on revenue recognition in May of 1992 by the name E41. The new exposure draft provided a more clear and operational definition of revenue recognition. According to the exposure, “Revenue is the gross inflow of cash, receivables or other considerations arising from the sale of goods, from rendering services
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