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CAPITULO 18 INTERMEDIA - Chapter 18 Revenue CHAPTER 18...

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C H A P T E R 18 REVENUE This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. CURRENT ENVIRONMENT Most revenue transactions pose few problems for revenue recognition. This is because, in many cases, the transaction is initiated and completed at the same time. However, not all transactions are that simple. For example, consider a customer who enters into a mobile phone contract with a company such as Vodafone (GBR). The customer is often provided with a package that may include a handset, free minutes of talk time, data downloads, and text messaging service. In addition, some providers will bundle that with a fixed-line broadband service. At the same time, customers may pay for these services in a variety of ways, possibly receiving a discount on the handset, then paying higher prices for con- nection fees, and so forth. In some cases, depending on the package purchased, the com- pany may provide free applications in subsequent periods. How then should the various pieces of this sale be reported by Vodafone? The answer is not obvious. It is therefore not surprising that a recent survey of financial executives noted that the revenue recognition process is increasingly more complex to manage, prone to error, and material to financial statements compared to any other area in financial reporting. The report went on to note that revenue recognition is a top fraud risk and that regard- less of the accounting rules followed (IFRS or U.S. GAAP), the risk or errors and inac- curacies in revenue reporting is significant. 1 Indeed, both the IASB and the FASB indicate that the present state of reporting for revenue is unsatisfactory. IFRS is criticized because it lacks guidance in a number of areas. For example, IFRS has one basic standard on revenue recognition— IAS 18— plus some limited guidance related to certain minor topics. In contrast, U.S. GAAP has nu- merous standards related to revenue recognition (by some counts over 100), but many believe the standards are often inconsistent with one another. Thus, the accounting for revenues provides a most fitting contrast of the principles-based (IFRS) and rules-based (U.S. GAAP) approaches. While both sides have their advocates, the IASB and FASB recognize a number of deficiencies in this area. 2 Unfortunately, inappropriate recognition of revenue can occur in any industry. Prod- ucts that are sold to distributors for resale pose different risks than products or services that are sold directly to customers. Sales in high-technology industries, where rapid prod-
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