Revenue Recognition Based on Net Position: A Critical Study
Accounting, Vol. 61, No. 9, pp. 6–15, 2009
16 Pages Posted: 3 Jun 2011
Date Written: September 2009
Abstract
The notable discussion paper (DP): Preliminary Views on Revenue Recognition in Contracts with Customers was issued by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) in December 2008. We could identify the following two main proposals contained in the DP. First, revenue should be recognized on the basis of increases in an entity’s net position in a contract with a customer. Second, revenue should be recognized at the time of satisfying performance obligation. This paper focuses on the first proposition because, according to the DP, the model proposed in it aims to develop a new model on revenue recognition based on net position. This paper concludes that, with respect to rebuilding the revenue recognition model based on changes in net position, the DP contains serious self-contradictions.
Keywords: Revenue recognition, Assets and liabilities approach, Net position, Earnings process, Customer consideration, Current exit value
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