Table of Contents

Title Page

Copyright Page

PREFACE

ABOUT THE AUTHOR

Chapter 1 - REVENUE RECOGNITION GENERAL PRINCIPLES AND SYSTEMS

OVERVIEW OF REVENUE RECOGNITION

REVENUE RECOGNITION GENERAL GUIDELINES

REVENUE RECOGNITION FRAUD

EVOLVING PROBLEMS IN REVENUE RECOGNITION

DISCLOSURES

REVENUE RECOGNITION POLICIES AND PROCEDURES

REVENUE RECOGNITION CONTROLS

Chapter 2 - REVENUE RECOGNITION UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS

OVERVIEW

DEFINITIONS OF TERMS

REVENUE MEASUREMENT FOR GOODS

REVENUE TIMING FOR GOODS

REVENUE MEASUREMENT FOR SERVICES

REVENUE TIMING FOR SERVICES

CONSTRUCTION CONTRACTS

INTEREST, ROYALTIES, AND DIVIDENDS

INCOME RECOGNITION FOR AGRICULTURAL PRODUCTS

GOVERNMENT GRANTS

BARTER TRANSACTIONS INVOLVING ADVERTISING SERVICES

CUSTOMER LOYALTY PROGRAMS

OTHER REVENUE RECOGNITION ISSUES

REVENUE RECOGNITION DISCLOSURES

Chapter 3 - REVENUE RECOGNITION WHEN COLLECTION IS UNCERTAIN

OVERVIEW

DEFINITIONS OF TERMS

INSTALLMENT METHOD

APPLYING THE INSTALLMENT METHOD

FINANCIAL STATEMENT PRESENTATION

INTEREST ON INSTALLMENT METHOD RECEIVABLES

BAD DEBTS AND REPOSSESSIONS

THE COST RECOVERY METHOD

DISCLOSURE OF INSTALLMENT SALES

REVENUE RECOGNITION POLICIES AND PROCEDURES

REVENUE RECOGNITION CONTROLS

Chapter 4 - REVENUE RECOGNITION WHEN RIGHT OF RETURN EXISTS

OVERVIEW

DEFINITIONS OF TERMS

REVENUE RECOGNITION WHEN THE RIGHT OF RETURN EXISTS

DISCLOSURE OF THE RIGHT OF RETURN

RIGHT-OF-RETURN POLICIES AND PROCEDURES

RIGHT-OF-RETURN CONTROLS

Chapter 5 - REVENUE RECOGNITION FOR MULTIPLE DELIVERABLES

OVERVIEW

DEFINITIONS OF TERMS

OVERVIEW OF MULTIPLE DELIVERABLES REVENUE RECOGNITION

MULTIPLE DELIVERABLE DISCLOSURES

MULTIPLE DELIVERABLE CONTROLS

Chapter 6 - REVENUE RECOGNITION IN FRANCHISING

OVERVIEW

DEFINITIONS OF TERMS

FRANCHISE SALES

AREA FRANCHISE SALES

OTHER RELATIONSHIPS

CONTINUING FRANCHISE AND OTHER FEES

COSTS

REPOSSESSED FRANCHISES

BUSINESS COMBINATIONS

DISCLOSURE OF FRANCHISING REVENUE RECOGNITION

FRANCHISING REVENUE POLICIES AND PROCEDURES

FRANCHISING REVENUE CONTROLS

Chapter 7 - REVENUE RECOGNITION FOR LONG-TERM CONSTRUCTION CONTRACTS

OVERVIEW

DEFINITIONS OF TERMS

THE PERCENTAGE-OF-COMPLETION METHOD

THE COMPLETED-CONTRACT METHOD

REVENUE MEASUREMENT

Chapter 8 - REVENUE RECOGNITION FOR MOTION PICTURES

OVERVIEW

DEFINITIONS OF TERMS

REVENUE RECOGNITION

MODIFICATIONS OF ARRANGEMENTS

PRODUCT LICENSING

PRESENT VALUE

MOTION PICTURE REVENUE DISCLOSURES

Chapter 9 - REVENUE RECOGNITION FOR NOT-FOR-PROFITS

DEFINITIONS OF TERMS

NOT-FOR-PROFIT REVENUE RECOGNITION

NOT-FOR-PROFIT REVENUE DISCLOSURES

NOT-FOR-PROFIT REVENUE POLICIES AND PROCEDURES

NOT-FOR-PROFIT REVENUE CONTROLS

Chapter 10 - REVENUE RECOGNITION ON REAL ESTATE SALES

OVERVIEW

DEFINITIONS OF TERMS

REAL ESTATE SALES OTHER THAN RETAIL LAND SALES

METHODS OF ACCOUNTING FOR REAL ESTATE SALES OTHER THAN RETAIL LAND SALES

PROFIT RECOGNITION ON RETAIL LAND SALES

TIME-SHARE TRANSACTIONS

OTHER ISSUES RELATED TO REAL ESTATE SALES TRANSACTIONS

DISCLOSURES FOR REAL ESTATE SALES

Chapter 11 - REVENUE RECOGNITION FOR RECORDING AND MUSIC

OVERVIEW

DEFINITIONS OF TERMS

REVENUE RECOGNITION BY LICENSORS

Chapter 12 - REVENUE RECOGNITION FOR SERVICES

OVERVIEW

DEFINITIONS OF TERMS

SERVICE TRANSACTIONS

SERVICE VS. PRODUCT TRANSACTIONS

REVENUE RECOGNITION METHODS

EXPENSE RECOGNITION

INITIATION AND INSTALLATION FEES

OTHER GUIDANCE TO ACCOUNTING FOR SERVICE TRANSACTIONS

SERVICE REVENUE DISCLOSURES

SERVICE REVENUE POLICIES AND PROCEDURES

SERVICE REVENUE CONTROLS

Chapter 13 - REVENUE RECOGNITION FOR SOFTWARE

OVERVIEW

DEFINITIONS OF TERMS

SOFTWARE REVENUE RECOGNITION

OTHER ACCOUNTING GUIDANCE

Chapter 14 - OTHER REVENUE RECOGNITION ACCOUNTING TOPICS

OVERVIEW

RECOGNITION OF FEES FOR GUARANTEEING A LOAN

SALES OF FUTURE REVENUES

REVENUE RECOGNITION ON SALES WITH A GUARANTEED MINIMUM RESALE VALUE

REVENUE RECOGNITION ON EQUIPMENT SOLD AND SUBSEQUENTLY REPURCHASED SUBJECT TO ...

ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS

ACCOUNTING BY A GRANTEE FOR AN EQUITY INSTRUMENT TO BE RECEIVED IN CONJUNCTION ...

ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS

ACCOUNTING FOR “POINTS” AND CERTAIN OTHER TIME-BASED OR VOLUME-BASED SALES ...

ACCOUNTING IN A BUSINESS COMBINATION FOR DEFERRED REVENUE OF AN ACQUIREE

ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A CUSTOMER

ACCOUNTING BY A CUSTOMER FOR CERTAIN CONSIDERATION RECEIVED FROM A VENDOR

APPLYING THE FOREGOING GUIDANCE TO SALES INCENTIVES OFFERED BY MANUFACTURERS TO ...

HOW TAXES COLLECTED FROM CUSTOMERS AND REMITTED TO GOVERNMENTAL AUTHORITIES ...

INDEX

Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada.

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ISBN: 978-0-470-61948-3

PREFACE

Revenue recognition is of critical importance to anyone in the business world, since it drives a large part of the perception of a company’s value, which is reflected in its stock price. This in turn impacts the returns of investors and any earnings of employees that are tied to stock options. Given these pressures, it should be no surprise that the outer boundaries of revenue recognition rules are constantly being explored by company managers, which has led to the bulk of all cases of financial fraud.

Revenue Recognition not only provides a detailed view of the current accounting rules and regulations pertaining to revenue recognition, but also describes the exact sources of this information, how a company’s treatment of revenue recognition is to be disclosed alongside the financial statements, and what policies, procedures, and controls can be used to enforce it in a consistent manner.

Revenue recognition rules vary not only by type of transaction, but also for some industries. Accordingly, the chapters of this book are clustered into transaction-related revenue recognition rules, and then into industry-related revenue recognition rules. Chapters 1 through 5 cover revenue recognition for transactions, including general principles, when collection is uncertain, when there is a right of return, and when there are multiple deliverables. These chapters include commentary about the revenue recognition positions of the Securities and Exchange Commission, as well as international financial reporting standards.

Chapters 6 through 13 then address revenue recognition for the following industries:

• Franchising

• Construction

• Motion pictures

• Not-for-profits

• Real estate

• Recording and music

• Services

• Software

Chapter 14 addresses a variety of miscellaneous topics too small for separate chapters, such as loan guarantee fees, sales with guaranteed resale values, advertising barter transactions, sales incentive plans, and so on.

This book is intended to be a source book for all aspects of revenue recognition—how to account for it, report it, and set up systems and controls to ensure that the rules are properly followed. Hopefully, Revenue Recognition will assist you in consistently recognizing revenue in the correct amounts, at the right time, and in accordance with generally accepted accounting principles.

Steven M. Bragg
Centennial, Colorado
March 2010

ABOUT THE AUTHOR

Steven Bragg, CPA, CMA, CIA, CPIM, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and auditor at Deloitte & Touche. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a bachelor’s degree in economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club, and is an avid Alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written the following books:

Accounting and Finance for Your Small Business

Accounting Best Practices

Accounting Control Best Practices

Accounting Policies and Procedures Manual

Billing and Collections Best Practices

Business Ratios and Formulas

The Controller’s Function

Controller’s Guide to Costing

Controller’s Guide to Planning and Controlling Operations

Controller’s Guide: Roles and Responsibilities for the New Controller

Controllership

Cost Accounting

Cost Reduction Analysis

Essentials of Payroll

Fast Close

Financial Analysis

GAAP Guide

GAAP Policies and Procedures Guide

GAAS Guide

Inventory Accounting

Inventory Best Practices

Investor Relations

Just-in-Time Accounting

Management Accounting Best Practices

Managing Explosive Corporate Growth

Mergers and Acquisitions

The New CFO Financial Leadership Manual

Outsourcing

Payroll Accounting

Payroll Best Practices Revenue Recognition

Run the Rockies

Running a Public Company

Sales and Operations for Your Small Business

The Ultimate Accountants’ Reference

The Vest Pocket Controller

Throughput Accounting

Treasury Management

FREE ONLINE RESOURCES BY STEVE BRAGG

Steve issues a free bimonthly accounting best practices newsletter and an accounting best practices podcast. You can sign up for both at www.stevebragg.com, or access the podcast through iTunes.

1

REVENUE RECOGNITION GENERAL PRINCIPLES AND SYSTEMS

OVERVIEW OF REVENUE RECOGNITION

The principles guiding recognition of revenues for financial reporting purposes are central to generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) and in most instances are unambiguous and straightforward. In fact, the underlying principles have not changed in decades. However, as business transactions have become more complicated over time, GAAP and IFRS have expanded to include detailed rules for certain types of revenue recognition issues. Revenue recognition for GAAP is now aggregated under Topic 605 of the Accounting Standards Codification, while the same topic is somewhat more dispersed among IFRS source documents. This book summarizes these issues by topic and industry, covering such industries as motion pictures, software development, franchising, and real estate, while also addressing such cross-industry topics as situations when there is a right of return, or if collection is uncertain.

Each chapter begins with an overview of the topic, definitions of key terms, and a discussion of the key revenue recognition issues. If GAAP or IFRS mandates or recommends disclosure of revenue recognition information alongside the financial statements, then these disclosures are also noted, along with examples. Finally, a number of policies, procedures, and controls are covered that can support the systems needed to accumulate and report revenue transactions. These supporting systems are quite necessary, in light of the fraudulent reporting problems that are discussed later in this chapter.

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!