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Description

This assignment is based on the following requirement –
The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) published the Exposure Draft entitled, Revenue from contracts with customers on 24 June 2010. The proposed standard would replace IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. The proposal aims to establish a single, contract based revenue recognition that would be applied across all industries and capital markets. The core principle of the draft standard requires entity to recognise revenue from contracts with customers when it transfers goods or services to the customer in the amount of consideration the entity receives, or expects to receive, from the customer. The Exposure Draft follows the discussion paper on revenue recognition published in December 2008 by the IASB. The discussion paper provided the preliminary views of the IASB in developing a revenue recognition model. The IASB received 226 comments on the contents of the discussion paper in 2009 and reviewed them to develop, for public comment, an exposure draft of a revenue recognition standard.
The proposed standard sets out principles for revenue recognition to be applied to contracts with customers. The key changes can be indicated as follows:
(a) Identifying and pricing separate performance obligations
(b) Satisfaction of performance obligations (focus on control)
These key changes may have significant implications on the revenue figures of the companies who need to follow IFRS. In addition other issues such as indicators of control and the impact of any changes to contractual terms may require further consideration. The Board plans to issue a standard of revenue recognition in June 2011 after evaluation of the comments letters on the Exposure Draft to be received by 22 October 2010. The Exposure Draft and Discussion Paper published by the IASB and the related comment letters on the questions set out in the Discussion Paper and Exposure Draft are available from www.iasb.org.
Required: You are required to write a report for the CEO of a public group company after reviewing the Exposure Draft, Discussion Paper, relevant comments from interested parties and other related sources. Your report should address and evaluate the issues set out below in a critical way. Good critical analysis involves (Cottrell, 2005):
• identifying a wide range of other people’s opinions, arguments and conclusion;
• evaluating the evidence for alternative points of view from different user groups of financial information, such as creditors (banks), shareholders, accounting bodies, managers, audit firms (mainly big four, if available) and other relevant user groups;
• weighing up opposing arguments and evidence fairly;
• depth and breadth of reasoning;
• accounting for why this happens, why it works or fails, why it is rational or irrational, why something is useful or useless; or good or poor. It is not enough merely to list good or poor points;
• examples providing good support for arguments;
• drawing conclusions about whether arguments are valid or justifiable, based on good evidence and sensible assumptions.
The following issues will need to be addressed in the report:
a. Briefly explain the proposed revenue recognition in the Exposure Draft with appropriate examples, when necessary.
b. Critically analyze the effects of the key changes resulting from the proposed model on reported revenues in different industries and companies.
c. Do you think the changes provide clear principles for revenue recognition and a single revenue recognition model will improve comparability over different industries and companies? Why or why not?