MA5-44 a) What are the revenue recognition requirements in this case? GAAP and IFRS generally establish that revenue can be recognized when the earning process is complete. GAAP specifically states that revenue must be realized, realizable or earned (Easton, Halsey, McAnally, Hartgraves, & Morse, 2010). That said the company in question has a revenue recognition policy of requiring customers acceptance for the earning process to be complete. I presume that they have reported this policy in footnotes to their 10-k reports as its required (Easton et al, 2010). b) What are the ethical issues relating to this sale? This sale raises ethical issues as it is a clear violation of the company’s policies. According to Easton et al, 2010 more than 70% of SEC accounting and auditing enforcement interventions have to do with misstated revenues. As a result of these types of situations a Staff Accounting Bulletin (SAB) 101 was issued with the intention of assisting companies in properly recognizing revenue. The case being discussed clearly relates to Case 4 on the SAB: Pending
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