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LEARNING OBJECTIVES

After studying this chapter, you should be able to:

  1. 1 Understand revenue recognition issues.
  2. 2 Identify the five steps in the revenue recognition process.
  3. 3 Identify the contract with customers.
  4. 4 Identify the separate performance obligations in the contract.
  5. 5 Determine the transaction price.
  6. 6 Allocate the transaction price to the separate performance obligations.
  7. 7 Recognize revenue when the company satisfies its performance obligation.
  8. 8 Identify other revenue recognition issues.
  9. 9 Describe presentation and disclosure regarding revenue.

It's Back

Revenue recognition practices are the most prevalent reasons for accounting restatements. A number of the revenue recognition issues relate to possible fraudulent behavior by company executives and employees. Consider the following situations.

  • Rolls-Royce (GBR) was questioned by investors about the revenue recognition practices for its “Totalcare” contracts, where engines are sold at little or no profit but tie the customer into long-term servicing and parts purchases. When it was revealed that market regulators were exploring these revenue practices and changes in how Rolls booked fees from its risk-sharing partnerships, the company's share price slipped to a one-year low.
  • The former co-chairman and CEO of Qwest Communications International Inc. (USA) and eight other former Qwest officers and employees were ...

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