ACCOUNTING-ACCT 495 Contemporary Issues In Accounting Professor Person

QUESTION

Name Here
ACCT
495 Contemporary Issues In Accounting
Professor
Person
November
10, 2015

Executive
Summery
This is a
project that the Financial Accounting Standards Board, (FASB) has been working
on for years. It’s a new standard and guidance for revenue recognition. The new
guidance standardizes how companies should recognize revenue in financial
statements under both US Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS).
History
of the Financial Accounting Standards Board
The FASB was
established in 1973. FASB’s founding members were Chairmen Marshall Armstrong,
John Queenan, Donald Kirk, Arthur Litke, Robert Mays, Walter Scheute, and
Robert Sprouse.
Why the FASB
Issue a New Standard on Revenue Recognition
There were many
factors pushing the FASB to develop a new standard in revenue recognition. The
benefits that come from the change show the initial problems. The new standards
helps to removes inconsistencies and weaknesses in existing revenue
requirements, provides a more robust framework for addressing revenue issues, improves
comparability of revenue recognition practices across entities, industries, jurisdictions,
and capital markets, provides more useful information to users of financial
statements through improved disclosure requirements, and simplifies the
preparation of financial statements by reducing the number of requirements to
which an organization must refer. (FASB Revenue Recognition, 2015)
The
Core Principle of the New Standard
The core
principle stated by the FASB is to “Recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those
goods or services.” (FASB
Revenue Recognition, 2015) In order for companies to successfully achieve the
core principle the FASB has set they must apply each of the five steps. These
five steps include; identifying the contract with a customer, identifying the
performance obligations or promises in the contract, determining the
transaction price, allocate the transaction price to the performance
obligations in the contract, and recognize revenue when or as the reporting organization
satisfies a performance obligation. (FASB Revenue Recognition, 2015) “The
revenue standard will be introduced into the FASB’s Accounting Standards
Codification as Topic 606 by Accounting Standards Update 2014-09, Revenue from
Contracts with Customers. The new standard replaces the previous revenue
recognition guidance contained in Topic 605. The guidance will be included in
IFRS as IFRS 15 Revenue from Contracts with Customers and replaces IAS 18
Revenue, IAS 11 Construction Contracts, and related interpretations.” (Bramwell
J., 2014)
How the new
standard change current GAAP
There are five
major points that will change the current GAAP. Firstly under today’s guidelines
there are numerous requirements for recognizing revenue whereas under the new
guidance there will be consistent principles for recognizing revenue,
regardless of industry and/or geography. Secondly, under today’s principle
other than disclosures in accounting policies and segment reporting, most
companies and other reporting organizations provide limited information about
revenue contracts, whereas the new guidance includes a cohesive set of
disclosure requirements that will provide users of financial statements with
useful information about the organization’s contracts with customers. Thirdly,
today many goods or services promised in a contract with a customer are deemed
not to be distinct revenue generating transactions when in fact those promises
might represent separate obligations to the entity to the customer, whereas
under the new standard reporting organizations will identify each of the or
services promised to a customer, determine whether those goods or services
represent a performance obligation is satisfied. Next, in a multiple element
arrangement the amount of consideration allocated to a delivered element is
limited to the amount that is not contingent on delivering future goods or
services, whereas under the new standard Companies will allocate the
transaction price to each of the performance obligations in the contract on the
basis of the relative standalone selling price of the underlying goods or
services, except when a discount or a variable amount of consideration relates
entirely to one or more of the performance obligations in the contract. Lastly,
accounting for variable consideration differs greatly across industries, and
the new standard a single model to consider for variable consideration, which
includes rebates, discounts, bonuses, or a right of return. Variable
consideration will be included in the transaction price to the extent it is
probable that a significant reversal in the amount of cumulative revenue
recognized will not occur. (FASB Revenue Recognition, 2015)
Who will be
affected by the new guidance
“The new
guidance on revenue recognition affects any reporting organization that either
enters into contracts with customers to transfer goods or services or enters
into contracts for the transfer of nonfinancial assets unless those contracts
are within the scope of other standards” (FASB Revenue Recognition, 2015) “They
would affect how auto makers account for car sales and telephone companies
account for mobile-phone contracts.” (Murphy, M. 2015, January 26).
The Joint Transition
Resource Group (TRG)
The joint
transition resource group is comprised of 10 to 15 specialists representing
financial statement preparers, auditors, regulators, users, and other
stakeholders as well as members of the two boards – that will be responsible
for informing the FASB and the IASB about interpretive issues that could arise
once companies, institutions, and other organizations begin implementing the
revenue standard. Any stakeholder can submit a potential implementation issue
for discussion at TRG meetings. The FASB and the IASB will evaluate each
submission and prioritize the issues for discussion at TRG meetings. (FASB
Revenue Recognition, 2015)
When
will the final accounting standards update be effective?
“Based on the Board’s decision, public
organizations* should apply the new revenue standard to annual reporting periods
beginning after December 15, 2017. Nonpublic organizations should apply the new
revenue standard to annual reporting periods beginning after December 15, 2018.”
(FASB Revenue Recognition, 2015)
Analysis
and Evaluation
With any change,
especially one that is on such a large scale affecting so many there are bound
to be ups and downs. Patricia McConnell, a member of the International
Accounting Standards Board (IASB) explains “Not only will it lead to better
alignment between a company’s revenue and performance, but it will also provide
a one-stop shop for revenue accounting for companies that use IFRS and US GAAP,
regardless of which sectors or capital markets they operate in. This, in turn,
will help investors in their analysis and comparison of these companies.”
(McConnell, P., 2014, June 1). “The
accounting shakeup is set to start Jan. 1, 2017, but officials at the FASB
received roughly 1,400 comment letters from companies that are spending
millions to update computer software, recalculate contracts and rejigger past
financial results.” (Murphy, M. 2015, January 26)

Bibliography

FASB, Financial Accounting Standards Board. (n.d.).
Retrieved November 10, 2015, from .fasb.org/jsp/FASB/Page/BridgePage&cid=1351027207987″>http://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1351027207987

Revenue Recognition:
What did the FASB issue a new standard?, What is the core principle of the new
standard? How will the new standard change current GAAP?, Who will be affected
by the new guidance? What is the joint transition group? (TRG), How can I
submit an issue for the TRG to consider? When will the final standards update
be effective?
Bramwell, J. (2014, May 28). FASB, IASB Unveil Final
Standard on Revenue Recognition. Retrieved
November 10, 2015, from.accountingweb.com/aa/standards/fasb”>http://www.accountingweb.com/aa/standards/fasb iasb-unveil-final-standard-on-revenue-recognition
FASB, IASB Unveil Final
Standard on Revenue Recognition: It also will result in enhanced disclosures
about revenue, provide guidance for transactions that were not previously
addressed comprehensively (such as service revenue and contract modifications),
and improve guidance for multiple-element arrangements.
McConnell, P. (2014, June 1). Revenue Recognition:
Finally, a Standard Approach for All. Retrieved
November 10, 2015, from.ifrs.org/Investor-resources/2014″>http://www.ifrs.org/Investor-resources/2014 Investor-Perspectives/Documents/Investor-Perspective-IFRS-15-June-2014.pdf
Patricia
McConnell, a member of the IASB, provides her perspectives on the new accounting
requirements for revenue recognition. the issuance of IFRS 15 is a significant
milestone in financial reporting. Not only will it lead to better alignment
between a company’s revenue and performance, but it will also provide a
one-stop shop for revenue accounting for companies that use IFRS and US GAAP,
regardless of which sectors or capital markets they operate in. This, in turn,
will help investors in their analysis and comparison of these companies.
Murphy, M. (2015, January 26). For New
Revenue-Recognition Rules, It’s Ready vs. Not. Retrieved
November 12, 2015, from.wsj.com/articles/for-new-revenue”>http://www.wsj.com/articles/for-new-revenue recognition-rules-its-ready-vs-not-1422316175
Will Accounting Measure
Take Effect as Scheduled? Some Companies Urge Delay: The accounting shakeup is
set to start Jan. 1, 2017, but officials at the FASB received roughly 1,400
comment letters from companies that are spending millions to update computer
software, recalculate contracts and rejigger past financial results.
Cheney,
G. A. (2013). FASB Hits the BIG Four-0. (cover story). Financial Executive,
29(5), 336..b.ebscohost.com.ezproxy.umuc.edu/eds/pdfviewer/pdfviewer?sid=37add4a4-45fd-4968-bfbf-a96d545c85d5%40sessionmgr110&vid=2&hid=108″>http://eds.b.ebscohost.com.ezproxy.umuc.edu/eds/pdfviewer/pdfviewer?sid=37add4a4-45fd-4968-bfbf-a96d545c85d5%40sessionmgr110&vid=2&hid=108

The FASB was
established in 1973. FASB’s founding members were Chairmen Marshall Armstrong,
John Queenan, Donald Kirk, Arthur Litke, Robert Mays, Walter Scheute, and
Robert Sprouse.
Shenkir,
W. G. (1975). ACCOUNTING HISTORY, THE ACCOUNTING HISTORIAN, AND THE FASB. The
Accounting Historians Journal, (1/4).
22.http://eds.b.ebscohost.com.ezproxy.umuc.edu/eds/detail/detail?sid=66e2d09d-31e6-4550-8c3f-d105f7e6c734%40sessionmgr110&vid=0&hid=108&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#AN=edsjsr.40697362&db=edsjsr
Streaser,
S., Jialin Sun, K., Perez Zaldivar, I., & Ran, Z. (2014). Summary of the
New FASB and IASB Revenue Recognition Standards. Review Of Business, 35(1),
7-15. http://eds.b.ebscohost.com.ezproxy.umuc.edu/eds/pdfviewer/pdfviewer?sid=eef35d10-7ec9-47b7-a3f9-a9e062d15a9c%40sessionmgr111&vid=1&hid=108

In a five- to seven-page paper, you should describe
the project, its history (briefly), and the project’s status. The final section
of your paper should describe the implications of the project’s adoption. For
example, a paper might discuss a project that would result in accelerating the
recognition of certain expenses and require additional disclosures.

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