ASSOCHAM

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US GAAP, IFRS and Indian GAAP A Comparison

• Revenue Recognition

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Importance of Revenue
Contd
Recent revenue restatements of High-Technology
Companies
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Importance of Revenue
40 of SEC enforcement actions on accounting
issues deal with revenue recognition
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Importance of Revenue
Contd
SOA impact Change in Revenue Recognition
Practices in Industry (Survey on 400 companies)
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Importance of Revenue
Contd
Revenue recognition tops list of FASB priorities

• Survey on priorities of FASB
• As per council members, board members, and other
  interested constituents
• Consecutive for 5th year

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Importance of Revenue
Contd
Priorities of the FASB

• Revenue Recognition
• Reporting Financial Performance
• Fair Value Measurement
• Simplification and Codification
• International Short-Term Convergence
• Employee Benefits/ Pension Accounting Business
  Combinations
• Business Combinations Purchase Method Procedures
• Conceptual Framework
• Equity-Based Compensation
• Leases

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Indian GAAP guidelines for Revenue Recognition

• AS 9 (Revenue Recognition)
• Sale of Goods
• No significant uncertainty regarding the amount
  of the consideration
• Property in the goods has been transferred for a
  price
• All significant risks and rewards of ownership
  have been transferred
• The entity retains no effective control of the
  goods transferred
• Rendering of Services
• No significant uncertainty regarding the amount
  of the consideration
• Completed Service Contract method or
  Proportionate Completion method

Contd
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Indian GAAP guidelines for Revenue Recognition
Contd

• AS 9 (Revenue Recognition)
• Interest On Time Proportion basis
• Royalty On Accrual basis
• Dividend On establishing right to receive
  dividend

No uncertainty exists as to measurability and
collectability
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Indian GAAP guidelines for Revenue Recognition
Contd

• AS 9 (Revenue Recognition)
• Specific illustrations
• Delivery delayed at buyers request
• Delivery subject to conditions
• Installation Commissioning
• On approval
• Consignment Sale
• Sale/Repurchase Agreement
• Installment Sale

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IFRS guidelines for Revenue Recognition

• IAS 18
• It is probable that economic benefits will flow
  to the entity.
• The amount of revenue can be measured reliably
• The entity has transferred to the buyer the
  significant risk and rewards of ownership of the
  goods.
• The entity retains neither continuing managerial
  involvement nor effective control over the goods.
• The cost incurred or to be incurred in respect of
  the transaction can be measured reliably.
• The stage of completion of transaction can be
  measured reliably.

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US GAAP guidelines for Revenue Recognition

• SEC Staff Accounting Bulletin No. 104
• There is persuasive evidence that a sales
  agreement exists,
• Delivery has occurred or services have been
  rendered,
• Sellers price to the buyer is fixed or
  determinable, and
• Collectibility is reasonably assured.

Additional comprehensive guidelines on specific
revenue recognition situations
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Revenue Recognition Challenges- US GAAP

• Some serious revenue recognition challenges are
• Revenue recognition upon delivery pending
  execution of sales agreements/customer
  acceptance.
• Revenue recognition upon consumption.
• License fee revenue
• Side agreements
• Barter transactions.

Contd
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Construction Contracts under Various GAAP
Revenue Recognition

• If outcome can be estimated reliably
• Revenue and expenses recognised on POC / CC
• Any expected loss to be recognised immediately
• If outcome can not be estimated reliably
• Revenue should be recognised to the extent of
  recoverable Costs incurred
• Any expected loss to be recognised immediately

IFRS Completed Contract Method Prohibited
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Revenue Recognition Comparison under various
GAAPs
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Revenue Recognition way forward

• One set of comprehensive guidelines jointly by
  FASB and IASB
• One of most sweeping accounting changes ever
• Revenue can be seen by looking at changed values
  of assets and liabilities in B/sheet
• More focus on principle instead of engineering a
  transaction around

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