Revenue Recognition - No Time to Wait

Question: Discuss the issue of the Journal of Accountancy. Answer: As we all are aware of the fact that presently GAAP has involved complex, disparate and detailed revenue recognition requirements in respect of specified transactions such as software and real estate. Consequently, it has been observed that different industries use various accounting regarding similar transactions (Blodget, Henry,2009) The main purpose of the new guidance is mainly to establish the specific principles so as to report the required information in regard to the nature, timing as well as the uncertainty in respect of revenue to the users of the financial statement. Issuance of new guidance on revenue recognition (Revenue Recognition As-9 ) Helps to remove inconsistencies as well as weakness which is prevailing in the current revenue requirements Maintain to improve comparability for revenue recognition across industries, organization, and capital Market. Due to improved disclosure requirements, it has resulted in providing more useful information to the users of financial statements. Due to the reduction/ elimination in the number of disclosure, it consequently simplifies the preparation of financial statements. It also provides that new guidance also would affects any reporting entity which either enters into a contract with the customer for transfer of goods or service such as lease contracts, insurance contracts. Some of the changes are as follows Sale can be recognized any after the product or service delivered to the customer. The new concept has been developed Estimated Selling Price which provide the company an option to rely on the internal estimates for the selling price in case there is no third - party evidence is available. It is clearly indicated that entity cannot use residual method of accounting so as to allocate sale value. They have to decide regarding the method to be apply it may be ESP (Estimated Selling Price, VSOE or third party evidence of selling price. Disclosure must be made in the financial statement about the ESP by the organization. It is clearly indicated that in order to allocate the value of sale, an entity cannot use the residual method. Proper disclosure must be made in the financial Statement specifying the approach that how they decided about the estimated selling price It is provided that under new guidance of revenue recognition, the (Apple) companys recognition for all the revenues as well as product cost, for I phone and Apple TV, must be ascertain as when these products/ objects are delivered to the customer. However it is provided that under the historical approach, Entity is required to account for sale of both the item using the subscription accounting because the company indicated that they may provide software upgrades and other features for those products free. Under that approach i.e. subscription accounting, revenue as well as the associated cost for I phone and Apple TV are differed at the time of sale and have been recognized over useful estimated life for each period (Rigaud, Sylvain,2015). Consequently, it would result in a deferral of the significant amount of revenue as well as cost related to the same. Therefore, it can be stated that adoption of new guidance for revenue recognition significantly changes how the company accounts for certain operating items such as the sale of I phone and Apple TV (Blodget, Henry,2016). Work Cited Blodget, Henry. "Iphone Accounting Change Could Send Apple Profits And Stock To Moon". Business Insider. N.p., 2016. Web. 22 Mar. 2016. FASB, IASB Unveil Final Standard on Revenue Recognition. (2014).AccountingWEB. Retrieved 22 March 2016, from https://webcache.googleusercontent.com/search?q=cache:H2fY_PNODFIJ:www.accountingweb.com/aa/standards/fasb-iasb-unveil-final-standard-on-revenue-recognition+cd=9hl=enct=clnkgl=in "09 Accounting Standard 9 - Revenue Recognition - AS 9". Knowledgebible.com. N.p., 2010. Web. 22 Mar. 2016. Revenue recognition: Effectively managing accounting change. (2016).PwC. Retrieved 22 March 2016, from https://www.pwc.com/us/en/audit-assurance-services/accounting-advisory/revenue-recognition.html