Revenue Recogniton: GAAP vs IFRS

Research Paper. 12-15 pgs. 5-7 Scholarly sources.These are the paragraphs I submitted to the professor for approval.The adoption of International Financial Reporting Standards (IFRS) in the United States looms closer and becomes more inevitable as the world turns into a global market place. It is not clear whether IFRS is better than U.S. Generally Accepted Accounting Principles (GAAP). There are many similarities, especially as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) work together to slowing bring the two standards closer together. There still remain some significant differences. One such difference is the way revenue is recognized. Revenue recognition is very important as it is often the first thing examined by investors. Revenue recognition under US GAAP is a rather straight-forward concept. Revenue is considered to be recognizable in the period that is it either realized or earned. This is not to say that revenue recognition under US GAAP is at all simple. This simple principle is then augmented with extensive and detailed rules. It is made even more complex by having different sets of rules for different industries.IFRS has two primary revenue standards that capture all revenue transactions within one of four broad categories: Sale of goods, rendering of services, others’ use of an entity’s assets, construction contracts. First criteria for the recognition of revenue is the probability that the economic benefits associated with the transaction will flow to the entity and the second criteria is that the revenue and costs can be measured reliably. Within each category of revenue classification is additional guidance but it is without significant further rules to be applied.Switching from GAAP to IFRS with respect revenue recognition is significant because when determining a company’s tax liability, the first step is to determine the taxable income. That of course is determined, very simply put, by determining revenue and expenses.

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