The process of revenue recognition refers to the accrual accounting principle and the matching principle that deals with the determination of the period for accounting in which are expenses and the revenues are recognized. As per the principles the realization of the assets takes place at the time they are realized or at the time when the cash is received. However the cash can be recognized earlier or in alter period from the time when the obligations are met. Therefore, in this context two types of accounts can be identified that includes accrued revenue that means the revenues are recognized before the cash is being received and then comes the deferred revenue that includes recognition of revenue after the cash is received. In case of the financial statements the revenue recognition is the important factor (Henderson et al. 2015). However, it is not compulsorily comparable with other companies since the reported amount depends on the time when the company recognizes the time when the revenues are earned not when they are received. For this discussion the two journals have been selected Challenges in understanding and applying revenue recognition by Hepp and Accounting irregularity, improper revenue recognition and auditor litigation by Amoah, Bonaparte, Kelly and Makawwi, (2018)
The Australian Company has the objective to promote confidence to the investor along with a sound integrity. The Australian Accounting Standards Board (AASB) makes legislative requirements for the organization and makes sure that the issues that are faced by the company in the context of financial reporting are solved so that the process becomes much smooth. The AASB also ensures to meet the requirements of the International Financial Reporting Standards (IFRS). When it comes to revenue recognition two journals have been selected are “Challenges in understanding and applying revenue recognition” by Hepp (2018) and “Accounting irregularity, improper revenue recognition and auditor litigation” by Amoah, Bonaparte, Kelly and Makawwi, (2018). Both of the selected journals deal with the contemporary issues that are faced by the accountants in the context of the revenue recognition. In addition to that the topics cover the effects of improper revenue recognition and accounting irregularity given that they are accounting misstatement characteristics that could have severe valuation consequences on shareholder wealth and signal intentional misstatement this would enable in better understanding the revenue recognition process more systematically.
The journal that is selected is “Challenges in understanding and applying revenue recognition” by Hepp (2018) aims in analyzing the adaptation of the changes in the financial reporting in the various companies in Australia. It can be said that the new standards in the revenue recognition principle increases the understandability and comparability in the financial reporting process. The primary purpose of the journal is to represent the process of determining accurately the process of application of those principles to a wide range of industries, educating professionals in practice and overcoming inertia by reporting entities and the users of their financial statements in adapting to the changes (Schaltegger and Burritt 2017).
The second journal “Accounting irregularity, improper revenue recognition and auditor litigation” by Amoah, Bonaparte, Kelly and Makawwi, (2018), focuses on this journal is on the accounting irregularity and improper revenue recognition given that they are accounting misstatement characteristics that could have severe valuation consequences on shareholder wealth and signal intentional misstatement. The authors has examined the characteristic that the auditor will be sued in a securities class action lawsuit initiated by shareholders against an audit client and calculate the probability that the accounting misstatement characteristics that triggered the lawsuit will result in an action being brought against the auditor(Du, Alford and Smith 2016). The discussion has identified a bigger propensity that the auditor will be sued when the accounting misstatement is triggered by an irregularity in accounting. The observation is made that the auditor is more likely to be sued when revenues are improperly recognized by the audit client (Dutta, Chandra and Marcinko 2018). The outcomes support the initiatives by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission for improvising the revenue recognition.
The research questions that can be framed in this context of revenue recognition are:
In the two of journals the similarity that is pointed out that both of them is based on the recognition of revenue and the various issues that are related with it. The focus is made on the new revenue recognition standard according to the FASB (Harmon and Ntseh 2016). It refers to the result of a joint effort with the International Accounting Standards Board, which addresses revenue recognition issues that have adversely impacted the capital markets and wealth of the shareholder. Both the journal the highlights on the effect of the new revenue recognition rules, reporting firms are required to disclose contract details, contract terms and conditions, progress reports, accounting judgments, and accounting estimates employed in recognizing revenues (Bloom and Kamm 2014). The purpose for these disclosure requirements is to enhance users of the accounting understanding of the revenue transactions nature, the amount of contract, the timing and any uncertainties regarding the revenues and the cash flows to enable them to make informed decisions. The journal by The journal that is selected is “Challenges in understanding and applying revenue recognition” by Hepp (2018) put stress on the effectiveness of a client corporate governance of the firm’s that could impact audit quality, our results support the strengthening of corporate governance mechanisms such as audit committees to enhance audit quality. The other issue is that have been identified is three accounting models that have become obsolete. On the other hand the second journal “Accounting irregularity, improper revenue recognition and auditor litigation” by Amoah, Bonaparte, Kelly and Makawwi, (2018), focuses on the results that support initiatives for improvising the audit quality with the use of audit quality indicators to guide audit firms, data analytics and technologies in audits, and randomization of audit quality inspections. The results of the study highlight the auditor compliance importance of with quality control standards to reduce the risk of litigation. The study also examines the relation between revenue recognition that is improper and auditor litigation (Gray 2014). The identified key factors that effects the quality of earnings is the revenues recognition reliability. The mechanism of improper revenue recognition is viewed negatively by the participants of market and can be taken as an audit failure indicator (Srivastava 2014).
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The journal by The journal that is selected is “Challenges in understanding and applying revenue recognition” by Hepp (2018) put stress on the effectiveness of a client corporate governance of the firm’s that could impact audit quality, our results support the strengthening of corporate governance mechanisms such as audit committees to enhance audit quality. The other issue is that have been identified is three accounting models that have become obsolete. |
The second journal “Accounting irregularity, improper revenue recognition and auditor litigation” by Amoah, Bonaparte, Kelly and Makawwi, (2018), focuses on the results that support initiatives for improvising the audit quality with the use of audit quality indicators to guide audit firms, data analytics and technologies in audits, and randomization of audit quality inspections. The results of the study highlight the auditor compliance importance of with quality control standards to reduce the risk of litigation. The study also examines the relation between revenue recognition that is improper and auditor litigation |
Conclusion
The discussion deals with a literature research of the contemporary issues that are faced in accounting. The two journals have been selected Challenges in understanding and applying revenue recognition by Hepp (2018) and Accounting irregularity, improper revenue recognition and auditor litigation by Amoah, Bonaparte, Kelly and Makawwi, (2018). It can be seen from both of the journals that the contemporary issues that are faced by the accountants in the context of the revenue recognition. The first article says that improper revenue recognition and accounting irregularity can lead to are accounting misstatement that could have severe valuation consequences on shareholder wealth. The second article would enable in better understanding the revenue recognition process more systematically. The discussion has identified a bigger propensity that the auditor will be sued when the accounting misstatement is triggered by an irregularity in accounting. The results of the study highlight the auditor compliance importance of with quality control standards to reduce the risk of litigation.
Reference list
Amoah, N.Y., Bonaparte, I., Kelly, M. and Makawwi, B., 2018. ACCOUNTING IRREGULARITY, IMPROPER REVENUE RECOGNITION AND AUDITOR LITIGATION. Academy of Accounting and Financial Studies Journal, 22(3).
Bloom, R. and Kamm, J., 2014. Revenue recognition: how we got here and where it will take us. Financial Executive, 30(3), pp.48-53.
Du, N., Alford, R.M. and Smith, P.L., 2016. Do GAAP And IFRS Differ In Collectiblity Judgments Related To Revenue Recognition?. Journal of Applied Business Research, 32(6), p.1675.
Dutta, S., Chandra, U. and Marcinko, D., 2018. Revenue Recognition at TSA Inc.-A Roller Coaster Ride. Issues in Accounting Education.
Gray, S.J. ed., 2014. International accounting and transnational decisions. Butterworth-Heinemann.
Harmon, F. and Ntseh, D., 2016. The New FASB & IASB Revenue Recognition Standards; Implementation and Effects.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hepp, J., 2018. ASC 606: Challenges in understanding and applying revenue recognition. Journal of Accounting Education, 42, pp.49-51.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.
Srivastava, A., 2014. Selling-price estimates in revenue recognition and the usefulness of financial statements. Review of Accounting Studies, 19(2), pp.661-697.
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