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Revenue_recognition_slides - Revenue recognition including...

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Revenue recognition including construction contracts
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Revenue recognition including construction contracts Page 2 Typical coverage of US GAAP Revenue recognition general guidelines Revenue recognition at time of sale Revenue recognition at time of service Departures from recognition at time of sale Sales with buyback agreements Sales with right of return Revenue recognition before delivery (construction contracts) Percentage-of-completion method Completed-contract method Revenue recognition after delivery (installment sales, cost-recovery method and deposit method) Accounting for multiple elements Bill-and-hold transactions Disclosure of revenue policies
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Revenue recognition including construction contracts Page 3 Executive summary General: Under both IFRS and US GAAP, revenue is not recognized until it is both realized (realizable) and earned. The preponderance of the accounting guidance on revenue recognition for IFRS is contained in IAS 18 and IAS 11. Under US GAAP, there is a large volume of guidance on revenue recognition, including numerous industry standards. Although IAS 18 and IAS 11 contain the IFRS general guidance for revenue recognition, there is a lack of specific guidance in relation to industry-specific issues and multiple-element arrangements. Revenue recognition at the time of sale: under IFRS, there is no specific requirement that persuasive evidence of a sale must exist before revenue is recognized as there is under US GAAP. Revenue recognition at the time of service: IFRS allows the use of the percentage-of-completion model for service contracts. This model is prohibited for service contracts under US GAAP.
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Revenue recognition including construction contracts Page 4 Executive summary Departures from recognition at the time of sale (sales with right of return): IFRS generally allows revenue recognition at the time of sale as long as the seller can reliably estimate the amount of future returns. US GAAP, in addition to the requirement to be able to reasonably estimate returns, has more detailed guidance. This guidance includes, among other conditions, that the buyer’s payment is not contingent on the buyer reselling the product and that the buyer has economic substance apart from the seller. Revenue recognition before delivery (construction contracts): IFRS does not allow the completed-contract method, while this method is permissible under US GAAP. IFRS specifies that if the criteria for using the percentage-of-completion method are not met, then revenue should be recognized to the extent that costs are incurred (as long as the costs are likely to be recovered) and costs should be recognized as incurred.
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Revenue recognition including construction contracts Page 5 Executive summary Accounting for multiple elements: IFRS does not include specific guidance for determining when a contract should be separated into multiple units of accounting. US GAAP does provide detailed guidance.
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