Rclyzingglobal reports ussed the reporting of

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..... -.rcLYZINGGLOBAL REPORTS ussed the reporting of operating income, including revenue measurement and the timing enue recognition. However, companies reporting under IFRS are likely to recognize rev- earlier for the following three reasons: ~.s. GAAP has specific guidance about what constitutes revenue, how revenue is measured, the timing of its recognition. Also, U.S. GAAP has extensive, industry-specific revenue recognition guidelines. IFRS is not specific about the timing and measurement of revenue recognition and does not provide industry-specific guidance. With less detailed guidance, the general management preference for reporting income earlier will likely prevail. _ U.S. GAAP revenue-recognition criterion is that the sales price be fixed or determinable. This means that if a sale involves contingent consideration, no revenue is recognized until the ntingency is resolved. IFRS considers the probability that economic benefits will flow to seller and records such benefits as revenue if they can be reliably measured. This means ntingent revenue is recognized earlier under IFRS. For multiple-element contracts, both U.S. GAAP and IFRS allocate revenue based on relative . values of the elements. However, IFRS requires fair-value estimates that are less restrictive. se reasons, our analysis of companies reporting under IFRS is likely to find more aggres- reporting and higher revenues (and net income). This front-loading of revenues is likely more -':;;;;c(JIUIl<ced for high revenue-growth companies and for industries with more multiple-element ts. 'e also discussed several expenses in this module, including research and development. are differences between U.S. GAAP and IFRS for R&D. U.S. GAAP expenses all R&D whereas IFRS allows capitalization and subsequent amortization of certain development . For some companies and some industries this can create differences for both the balance and income statement. For analysis purposes, we must review the R&D footnote of IFRS .:::::t::p:mi· es to determine the development costs capitalized for the period and the amount of amor- . n of previously capitalized costs. The difference between these two amounts represents the ional pretax expense that would be reported under U.S. GAAP. The IFRS intangible asset te reports the unamortized development costs, which represents the net asset that would not
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5-35 Module 5 I Revenue Recognition and Operating Income appear on a U.S. GAAP balance sheet (with the off-setting entries to deferred taxes and retain earnings). BUSINESS INSIGHT Pro Forma Income a~d,~~,!!!lgerial Motives The purported motive for reporting pro forma income is to eliminate transitory (one-time) items enhance year-to-year comparability. Although this might be justified on the basis that pro torrna income has greater predictive ability, important information is lost in the process. One role fc:x accounting is to report how effective management has been in its stewardship of invested capi- tal. Asset write-downs, liability accruals, and other charges that are eliminated in calculating pre
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