Abstract

http://ssrn.com/abstract=1792494
 
 

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Accounting for Revenues: A Framework for Standard Setting


Yuri Biondi


French National Center for Scientific Research (CNRS)

Robert J. Bloomfield


Cornell University - Samuel Curtis Johnson Graduate School of Management

Jonathan C. Glover


Carnegie Mellon University - David A. Tepper School of Business

Karim Jamal


University of Alberta - Department of Accounting, Operations & Information Systems

Prof. James A. Ohlson


Hong Kong Polytechnic University - School of Accounting and Finance

Stephen H. Penman


Columbia University - Department of Accounting

Eiko Tsujiyama


Waseda University - Graduate School of Commerce

March 6, 2011

Accounting Horizons, Vol. 25, No. 3, September 2011
University of Alberta School of Business Research Paper No. 2013-690

Abstract:     
This paper proposes an accounting for revenues as an alternative to the proposals currently begin aired by the FASB and IASB. Existing revenue recognition rules are vague, resulting in messy application, so the Boards are seeking a remedy. However, their proposals replace the traditional criteria — revenue is recognized when it is both “realized or realizable” and “earned” — with similarly vague notions that require both the identification of a “performance obligation” and the “satisfaction” of a performance obligation. Our framework aims for the concreteness that yields practical accounting solutions. It has three features. First, revenue is recognized when a customer makes a payment or a firm commitment to pay. Second, revenue recognition and profit recognition are combined, with profit recognition determined on the basis of objective criteria about the resolution of uncertainty under a contract, and then conservatively so. Two alternative approaches are offered: the complete contract method (where profit is recognized only on the termination of a contract) and the profit margin method (where a profit margin is applied to recognized revenues throughout the contract as the contract profit margin becomes clear. The latter requires resolution of uncertainty, so the completed contract method is the default.

Number of Pages in PDF File: 28

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Date posted: March 27, 2011 ; Last revised: June 11, 2013

Suggested Citation

Biondi, Yuri and Bloomfield, Robert J. and Glover, Jonathan C. and Jamal, Karim and Ohlson, Prof. James A. and Penman, Stephen H. and Tsujiyama, Eiko, Accounting for Revenues: A Framework for Standard Setting (March 6, 2011). Accounting Horizons, Vol. 25, No. 3, September 2011; University of Alberta School of Business Research Paper No. 2013-690. Available at SSRN: http://ssrn.com/abstract=1792494 or http://dx.doi.org/10.2139/ssrn.1792494

Contact Information

Yuri Biondi
French National Center for Scientific Research (CNRS) ( email )
ESCP Europe
79, avenue de la Republique
75011 Paris
France
HOME PAGE: http://yuri.biondi.free.fr/
Robert J. Bloomfield
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)
Jonathan C. Glover
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-8499 (Phone)
412-268-6837 (Fax)
Karim Jamal
University of Alberta - Department of Accounting, Operations & Information Systems ( email )
Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

James A. Ohlson
Hong Kong Polytechnic University - School of Accounting and Finance ( email )
M715, Li Ka Shing Tower
Hung Hom, Kowloon
China
Stephen H. Penman (Contact Author)
Columbia University - Department of Accounting ( email )
3022 Broadway
New York, NY 10027
United States
212-854-9151 (Phone)
212-316-9219 (Fax)

Eiko Tsujiyama
Waseda University - Graduate School of Commerce ( email )
1-6-1, Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050
Japan
81-3-5286-2048 (Phone)
81-3-3203-7067 (Fax)
HOME PAGE: http://www.waseda.jp/gradcom/index-e.html
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