Revenue Recognition, Accounting Enforcement and Error Correction: An Instructional Case Study
11 Pages Posted: 8 Aug 2010 Last revised: 13 Feb 2011
Date Written: February 10, 2011
As a consequence of accounting scandals, Germany – like many other countries – set up a supervisory body to control the compliance of listed companies with accounting regulations. The Financial Reporting Enforcement Panel (FREP) assumed their duty in July 2005 and has forced a number of companies to restate their financial statements. This case study covers one of the cases of FREP and invites students to reflect on the enforcement of financial reporting standards. Borussia Dortmund GmbH & Co. KGaA entered a sponsoring contract with the sports equipment provider Nike, Inc. and recognized parts of the yearly payments as soon as they had signed the contract. The FREP criticized this approach as the payments should have been recognized proportionately over the life of the contract. By examining the substance of the contract and the corrections made by the company, the case reviews both revenue recognition under IAS 18 and error correction according to IAS 8.
Keywords: Revenue Recognition, Financial Reporting Enforcement, Error Correction, IFRS
JEL Classification: M44, A20
Suggested Citation: Suggested Citation