'Old Hens Make the Best Soup': Accounting for the Earnings Process and the IASB/FASB Attempts to Reform Revenue Recognition Accounting Standards

Accounting in Europe, 2014, Vol. 11, No. 1, 13-33

36 Pages Posted: 23 Apr 2014 Last revised: 25 Apr 2014

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Eiko Tsujiyama

Waseda University - Graduate School of Commerce

Jonathan C. Glover

Columbia Business School

Nicole Thorne Jenkins

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics

Bjorn Jorgensen

London School of Economics & Political Science (LSE) - Department of Accounting and Finance

John Lacey

California State University, Long Beach

Richard H. Macve

London School of Economics & Political Science (LSE) - Department of Accounting and Finance

Date Written: April 14, 2014

Abstract

By developing a synthesis of documents that have been released officially under the revenue recognition project jointly run by the IASB and FASB, this article points out that the earnings generation and realisation process over time (that is to say, the traditional accounting model) is in reality still playing an important role without losing its raison d'être. Although this model is supposed to have been consistently rejected since the outset on the premise of the adoption of the assets and liabilities approach amid the Boards’ attempt to establish a new revenue recognition model, this article aims at reconfirming the significance and validity of this earnings process – that is, the corporate process of generating and realising earnings over time - as the representational focus of accounting for revenue recognition. Through an internal critique , our article summarizes and discusses successive Boards’ proposals under the same asset-liability approach that they have been advocating for revenue recognition. Through a comprehensive comparative analysis (external critique), our article further criticizes the usefulness and feasibility of this approach, especially the transfer-of-control basis of revenue recognition which the Boards propose. It argues then for an alternative approach that combines asset-liability with revenue-expense accounting while re-establishing focus upon the earnings process over time.

Keywords: revenue recognition, income to the firm, structuring opportunities

JEL Classification: M42

Suggested Citation

Biondi, Yuri and Tsujiyama, Eiko and Glover, Jonathan C. and Jenkins, Nicole Thorne and Jorgensen, Bjorn N and Lacey, John and Macve, Richard H., 'Old Hens Make the Best Soup': Accounting for the Earnings Process and the IASB/FASB Attempts to Reform Revenue Recognition Accounting Standards (April 14, 2014). Accounting in Europe, 2014, Vol. 11, No. 1, 13-33. Available at SSRN: https://ssrn.com/abstract=2427943

Yuri Biondi (Contact Author)

French National Center for Scientific Research (CNRS) ( email )

IRISSO - University Paris Dauphine PSL
Place Marechal Lattre Tassigny
75016 Paris
France

HOME PAGE: http://yuri.biondi.free.fr/

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

Jonathan C. Glover

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-1911 (Phone)

Nicole Thorne Jenkins

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States

Bjorn N Jorgensen

London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )

Department of Accounting Room, OLD 2.17
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/accounting/people/bjorn-jorgensen

John Lacey

California State University, Long Beach ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840-4601
United States

Richard H. Macve

London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6138 (Phone)
+44 20 7955 7420 (Fax)

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