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Financial Accounting Issue Essay

1929 words - 8 pages

Revenue Recognition
Revenue from contract with customer

EXECUTIVE SUMMARY

Revenue Recognition is regarded as one of the most important topic in accounting. However, it is most difficult issues that standard setters and accountants must deal with regularly because the accounting standards and rules are changing all the time for improving the quality of accounting, which also explains why there are so many changes over these two decades on Australian Accounting policy. This report will focus on some accounting policies regarding to recognition of revenue from the contracts with customers, its history before the adoption of international financial reporting standards (IFRS). Also, ...view middle of the document...

Table of Contents

EXECUTIVE SUMMARY………………………………………………………………………………..2

INTRODUCTION…………………………………………………………………………4

HISTORY……………………………………………………………………………………4

APPROACH TAKEN BY AUSTRALIA FRS……………………………………………………………………………………………5

FUTURE GLOBAL DEVELOPMENT………………………………………………5

CONCLUTION……………………………………………………………………………6

REFERENCE……………………………………………………………………………..7-9

INTRODUCTION
Recognizing revenue correctly is very important for companies to make further decision on their business. It is found that there were so many problems and ambiguities by using previous accounting standard. So Australian accounting boards were considering to use IFRS. There would be some substantial evidence to prove that a common language setting on accounting standards will promote transparency and comparability, thus improving overall quality of financial reporting and efficiency of capital markets (EC Regulation No. 1606/2002). In the later part of this report, future development of accounting standard will be discussed
History

ACCOUNTING STANDARD AASB 1004 was used as accounting policy for recognizing revenue before the introduction of IFRS. We find that recognition of revenue is quite extensive and general, which may reduce the quality of reporting. For instance, AASB 1004 addresses the treatment of revenues, whether or not attributable to ordinary activities and states and it also states that “revenue recognition is satisfied 1) when the entity takes control of the contribution or the right to receive it, 2)it is probable the economic benefits would flow to the entity and 3)the amount can be measured reliably.” Further, according to AASB 1004.11.1, an exchange or swap of goods or services can only be treated as a transaction that does not give rise to revenue when they are of the same nature and value and the transaction does not involve any cash consideration. Considering the another standard towards Construction Contract, Michelle pointed out that under AASB 1009, there are many flaws to the recognition process, such as recognition of profits instead of revenues and expenses, lack of explanation of the percentage of completion method in practice in particular(AASB 1009, 1997,para7.1) . Martin(2007,pp69) found out that prior to the implement of IFRS in 2005, Urgent Issues Group (UIG) Abstract 53 Pre-completion Contracts for the Sale of Residential Development Properties were always the standard property developers relied on to recognise revenue on pre-completion property sales on a percentage of
completion basis”. It is a big concern when the revenue should be recognized for off- the –plan sales. Stephen& Astrid(2007, pp12-15) added to it that because uncertainty of timing of the transfer and rewards of ownership to the buyer, some concerns to user are inevitable.
APPROACH TAKEN BY AUSTRALIAN IFRS

Under AASB 118, there is a more restrictive and narrower standard to recognize revenue. The...

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