66 Pages Posted: 1 Sep 2012 Last revised: 10 Apr 2013
Date Written: August 31, 2012
U.S. and international accounting-standard setters plan to launch a new, global revenue accounting standard, Revenue from Contracts with Customers, in 2013. Poised at the nexus of comparative contract law and international accounting, the proposal’s contract-based revenue recognition model creates new legal risks and opportunities for accountants, lawyers, clients, and financial statement users. Despite its focus on legally enforceable contracts, the proposed standard was drafted without input from the legal community. This Article models the proposal’s complex contract-analysis process, demonstrating that its revenue outcomes may vary materially because of seemingly minor interjurisdictional differences in law applicable to “open-price” contracts; offers practice pointers for attorneys, accountants, and auditors; recommends changes to the proposal, including the substitution of self-enforcing Nash equilibria for legally enforceable contracts; and encourages more collaboration between the legal and accounting professions in the joint deployment of legal and accounting expertise for better value creation, value allocation, and risk mitigation.
Keywords: comparative contract law, revenue recognition, proactive law, Nash equilibria, international accounting, IFRS, FASB Codification
JEL Classification: M41, K12, K22, K33
Suggested Citation: Suggested Citation
Schulzke, Kurt S. and Berger-Walliser, Gerlinde and Marchini, Pier Luigi, Lexis Nexus Complexus: Comparative Contract Law and International Accounting Collide in the IASB-FASB Revenue Recognition Exposure Draft (August 31, 2012). 46 Vanderbilt Journal of Transnational Law 515 (2013). Available at SSRN: https://ssrn.com/abstract=2139578 or http://dx.doi.org/10.2139/ssrn.2139578
Response to the Financial Accounting Standards Board's and the International Accounting Standard Board's Joint Discussion Paper Entitled, 'Preliminary Views on Revenue Recognition in Contracts with Customers'
By Ray Ball