Interpretation and Application of UK GAAP: For Accounting Periods Commencing On or After 1 January 2015

Chapter 8Revenue Recognition

1. Introduction
2. Deferred Payment
3. Specific Considerations
4. Exchanges and Sales of Goods
5. Rendering of Services
6. Interest, Royalties and Dividends
7. HM Revenue and Customs Requirements
8. Disclosure Requirements

Introduction

The issue concerning revenue recognition has been somewhat controversial over the years. Revenue is the headline figure in a company's financial statements and the controversy has largely surrounded some entities attempting to delay revenue recognition, or conversely accelerate revenue recognition, purely to engineer the financial statements to achieve a desired outcome (usually, though not exclusively, to manipulate profit for the purposes of taxation). Clearly such acts fail to achieve both relevance and reliability, which are notable characteristics that financial statements must contain according to the Concepts and Pervasive Principles. Manipulation of the revenue figure can also lead to enquiries by HM Revenue and Customs (HMRC) who may choose to impose penalties and interest on companies where it can be proved that deliberate manipulation of the revenue figure has taken place.

Regardless of any deliberate attempts to falsify, revenue itself has become more complex in recent years with arrangements such as service contracts tied in with purchase price. Clear guidance from accounting standards must therefore be assimilated and followed.

Revenue recognition is dealt with in Section 23 Revenue of FRS 102. This particular section is ...