The present report is developed for providing an analysis of the two selected research articles in relation to the topic of issues in revenue recognition during financial reporting by business organizations. In this context, the first research article selected is ‘A series of revenue recognition research cases using the codification’ selected from the journal of ‘Issues in Accounting Education’. The second research article selected is ‘Changes over time in the revenue-expense relation’ published in the journal ‘The Accounting Review’. This report examines the literature search of the two selected articles for explaining the purpose of the studies and also providing a discussion about their similarities and differences. At last, it provides major implications of the research findings obtained from the selected articles in relation to the external reporting of stakeholders.
The research articles in relation to the topic of revenue recognition are selected due to the following reason:
The purpose of the research study ‘A series of revenue recognition research cases using the codification’ is to enhance the critical thinking skills of student in relation to the issues of revenue recognition. The major objective of the research is to improve the abilities of students to identify and recognize the revenue in areas that are not outlined by the FASB (Financial Accounting Standards Board) standards used for recognition of revenue during financial reporting (Financial Accounting Standards Board (FASB), 2009). On the other hand, the purpose of the research study ‘Changes over Time in the Revenue-Expense Relation: Accounting or Economics?’ is to explore the economic events in relation to the revenue recognition that has lead towards the adoption of new accounting standards (Dain, 2011) & (Mark, 2011).
The research question that the first research study intends to explore in relation to the topic of revenue recognition is ‘What are the revenue recognition criteria that are not yet covered by the Financial Accounting Standards Board (FASB) for measurement of revenue during financial reporting?
The research questions that the second research study seeks to explore can be stated as follows ‘What are the changes incurred in revenue-expense relation due to the develop of new accounting standards for recognition of revenue’?
The similarity in the research findings among the two selected research articles are that they both has aimed to develop an understanding of the complex issues that business face in recognition of revenue. The research findings have developed an understanding of the weakness in the traditional method of accounting used for recognition of revenue developed by FASB (Lehman, 2010). The differences among the two research articles selected is in relation to the purpose of both the studies (Mark, 2011). The first article selected is developed to improve the student’s ability for analyzing and reporting revenue while the second article selected is developed for the purpose of accountants and stakeholders. The article emphasizes on the variety of economic conditions and situations that relates to development of new relation between the revenue and expenses. It has provided a discussion relation to the need for development of new accounting standards in context of changing economic conditions or scenario’s (Dain, 2011). The major economic changes promoting the need for developing new standard for revenue recognition during financial reporting can be depicted as follows:
In this section of report various implications of selected journal articles on accountants of Australian companies, accounting regulators, and investors. For each journal article two implications each for all the three identified stakeholders has been explained in detail.
Implication of Journal Article 1: “A Series of Revenue Recognition Research Cases Using the Codification”
Implication on accountant of Australian companies:
This journal explains the issues faced by accountants while applying revenue recognition standard in maintaining book of accounts. Accountants can gain knowledge of various cases where is difficult to apply revenue recognition standard as proper information has not been provided in the IFRS related to revenue recognition
Accountants in Australian company can make use of cases to gain knowledge on how to treat accounting issues that arises while applying revenue recognition standard to measure the revenue of companies (Klein and Marquardt, 2006).
Implication on accounting regulators:
Accounting regulators are responsible for forming the accounting policies for accounting standards and on how to apply the accounting standard. In this respect it is responsibility of accounting regulators to make policies and guidelines for the application of revenue recognition standard. So the cases that have been discussed in journal article can help accounting regulators to understand the problems faced while applying revenue recognition standard and provide guidelines to overcome such problems
This journal article can provides information related to cases where revenue recognition standard fails to provide proper guidelines on how to measure revenue in the financial statements. Further is can be articulated that this article has helped a lot the accounting regulators in making the required changes in accounting standard of revenue recognition
Investors are most benefited by this journal article as it helps them in understanding the financial statement in more meaningful manner
Investors can make use facts of the case to have proper understanding of revenue recognition standard and can apply this knowledge for understanding the financial standards in more meaningful manner (Mark, 2011).
The research article will help the accountant to identify the contemporary approaches for improving the management of earning during financial reporting
This journal article has impacted accounting regulators a lot as it has provided various special events that have wide spread impact on the correlation between the revenue and expenses. Thus it can be said that accounting regulators can make use of this journal article to find impact on the volatility of revenue due to increase in recognition of special items in the income statement.
There has been wide spread implication of this journal article on accounting regulator as study of this article reveals that there was role of increase in number of economic events associated with the special items in adoption of new accounting standard related to revenue recognition. So accounting regulators can make use of this study for setting up the required changes in accounting standard of revenue recognition (Dain, 2011).
The main implication of this journal article on investors is that they gain knowledge on how to interpret the correlation between income and expenses. As changes in current accounting standard related to the revenue recognition is not easy to understand due to complexities involved. This journal article helps investors to understand the relationship between the income and expenses.
This article makes it clear for investors that new revenue recognition standard and various special events are responsible for volatility of revenue recognized by the entities (McVay, 2006).
Conclusion
Thus, it can be stated from the overall discussion carried out in the report that there are variety of issues that the business organizations come across during measuring revenue and reporting it during development of financial statements. The research article selected have provided significant knowledge about the need for developing new accounting standards for revenue recognition by IASB for overcoming the present weaknesses. The major challenges that the business organizations come across during reporting of revenue that have not yet covered under the FASB standards have been discussed and analyzed in the selected research articles. The overall analysis of the articles carried out in the report will provide an in-depth understanding of the topic of issues in revenue recognition.
References
Dain, D. 2011. Changes over Time in the Revenue-Expense Relation: Accounting or Economics? The Accounting Review 86(3), pp. 945-974.
Financial Accounting Standards Board (FASB). 2009. Accounting Standards Codification. Norwalk. CT: FASB.
Klein, A., and Marquardt, C. 2006. Fundamentals of accounting losses. The Accounting Review 81 (1), pp. 179–206.
Lehman, C. M. 2010. Internal controls: A compendium of short cases. Issues in Accounting Education 25 (4): 741–754.
Mark, A.R. 2011. A Series of Revenue Recognition Research Cases Using the Codification. Issues in Accounting Education 26(3), pp. 609-618.
McVay, S. 2006. Earnings management using classification shifting: An examination of core earnings and special items. The Accounting Review 81(3), pp. 501–532.
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