FASB and IASB recently decided current revenue recognition practices were in dire need of an update and released a converged standard on revenue recognition under ASU 606 and IFRS 15. The new standard hopes to improve financial reporting by removing inconsistencies, improve comparability and overall provide more useful information to financial statement users. This paper examines how the new revenue recognition standard will impact the retail industry. This is said to be the biggest accounting standard change since Sarbanes-Oxley Act in 2002 and companies across the globe are gearing up to adjust current accounting practices to be in compliance with the new requirements. Though the accounting world is aware of the potential impacts of this new standard, is it is difficult to quantify exactly how much revenues will differ due to this change. Retailers that rely on gift card breakage as a large revenue stream will see the most material effects on their financial statements. Revised standards regarding revenue from loyalty programs and returns will also change how revenue is recognized but will have less of an impact than revenue from gift cards. Retailers can also expect their accountants to spend an abundant amount of time altering their accounting systems and restating historical data using the new method to calculate new revenue figures.

Diploma thesis is dedicated to software revenue recognition under IFRS and US GAAP. It aims to address all specifics related to software industry as well as challenges which arise from sales of intangible assets and intellectual property in form of licenses. Thesis covers both standard software delivery (OnPremise) and delivery in cloud for Software as a service. Significant portion is dedicated to multiple element arrangements which are very common for software industry. It also analyses new revenue recognition standard IFRS 15 Revenues from contracts with customers, which is a result of joined convergence project of IASB and FASB and how it will impact current revenue recognition practices in the industry.

I conduct an examination of the deferred revenue account. I provide descriptive evidence of deferred revenue both at an industry-level and a macro-level, and I examine whether managers use discretion in deferred revenue around earnings benchmarks. I develop a model to measure the normal change in short-term deferred revenue, and examine how the abnormal change varies across the pre-managed distribution of three common earnings benchmarks. My results show that managers delay recognition of revenue using deferred revenue when pre-managed earnings exceed benchmarks by a large margin, and accelerate the recognition of revenue using deferred revenue when premanaged earnings just miss or miss benchmarks by a large amount. I document the prevalence of accelerated revenue recognition, and show that meeting or just beating the annual consensus analyst forecast is where the most cases of suspected accelerated revenue recognition occur. The results are next strongest for the avoidance of earnings decrease benchmark and weakest for the avoidance of loss benchmark. I examine whether conventional abnormal accrual models reflect discretion in deferred revenue, and whether discretion in deferred revenue is associated with lower earnings quality. I show that deferred revenue changes are a leading indicator of future earnings. My results indicate that discretion in revenue can lower the predictability of sales regardless of whether it is of an aggressive or conservative nature.

Master of Agribusiness / Department of Agricultural Economics / Allen M. Featherstone / PS International (PSI) is an international trading company that specializes in the trading of bulk agricultural commodities. It has global strength to both export and import a variety of agricultural products using affiliated offices positioned throughout the world. To adapt to competitive pressures, advancements in technology, and economic conditions, privately-held companies are re-structuring their business by acquiring or partnering/merging with other companies. This results in a redefinition of the assets, operations, and relationships with the stockholders. The acquisition of a private company by a publicly held company creates unique issues because the newly acquired private company must meet SEC accounting standards. One example of this is the acquisition of PSI by Seaboard Corporation, a publicly traded company. In 2010, the owners of PSI sold fifty percent share of the company to Seaboard Corporation. Today Seaboard Corporation owns 80% of PSI. This research problem is based on the challenges that the acquisition of a private company by a public company faces. The focus of the analysis was on the accounting changes in the area of accounts receivable, in particular when revenue is recognized. PSI used cash basis accounting and Seaboard is required to use an accrual method that required a modification in PSI’s accounting system. This research investigates the impact of those changes on PSI’s accounts. The main factors used for comparison of revenue recognition under the cash and accrual method were departure date, transit time and payment terms. The comparisons were based on a data from 196 deliveries made in 2012. In the cash method, revenue was recognized for all the transactions during the month of shipment departure. This revenue was included whether or not the transactions were paid in full and whether or not the cargo arrived at its destination in the same month. In the accrual method, only 20.92% of the transactions were recognized in the current month of shipment, because revenue must be earned and realizable to be consistent with the SEC criteria, otherwise revenue must be deferred until the payment is collected. Therefore, as the result of applying either the cash or accrual method in the income statement, transaction will be recorded as accounts receivables and/or deferred transactions. With the application of the accrual method, the working capital calculation and the annualized margin must take more into consideration by managers, the trading staff and logistic staff.

A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. The primary issue in accounting for construction contracts is the allocation of contract revenues and contract costs to the periods in which the construction work is performed. Four approaches to accounting for construction contracts have developed over time: the completed-contract method, recognition based on cost incurred, the percentage-of-completion method and recognition based on invoicing. The basic principle of the completed-contract method is to recognize revenue only when it is certain, i.e. in the period when the contract is completed. During the period of performance no revenue is recognised and costs are accumulated in the balance sheet. The main disadvantage of this method is the lack of comparability of the presented amounts between single periods. On the other hand the method is based on the finally determined results, which means that the reported values are certain and cannot be manipulated by the company. Recognition based on costs incurred has the basic concept of recognizing profit only when it is certain. Thus the profit is recognised when the contract is finished. During the realization of the project revenue is recognised only to the extent of contract costs incurred. Contract costs are recognised as an expenses in the period in which they are incurred. The amounts of expense presented in the income statement are fully comparable between accounting periods. The reported revenue has much lower volatility than when using the completed-contract method. This approach provides the users of financial statement with an indication of the volume of a company's business. Under the percentage-of-completion method contract revenue is matched with the contract costs incurred in reaching a stage of completion, resulting in a reported revenue, expenses and profit which can be attributed to the proportion of work completed. Financial statements based on this method present more accurately the relationships between the gross profit from contracts and related period costs. The main disadvantage is the dependence on estimates of contract revenue, contract costs and percentage of completion. The estimates can be made intentionally or unintentionally inaccurate. In contrast to the other approaches recognition based on invoicing has no theoretical concept. Contract revenue is recognized according to the invoiced amounts in the appropriate period. An expense is recognised in the amount of costs allocated to parts of the project, which are the object of invoicing. The fundamental disadvantage of this approach is the possibility of manipulation of the amounts of recognized revenue and expenses. The presented amounts can be very different in similar economic situations. For the users of financial statements, the percentage-of-completion method is preferable, because this method provides useful information on the extent of contract activity and performance during a period. The presented amounts are fully comparable between accounting periods. On 24 June 2010 the IASB and FASB published an exposure draft Revenue from Contracts with Customers. This new standard should supercede IAS11. It has another approach to revenue recognition, but it doesn't mean that the presented values of construction contracts will differ significantly.

In May of 2014 the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a long-awaited joint updated standard on revenue recognition, ASU 2014-09 – Revenue from Contracts with Customers. While almost all entities will be affected to some extent by the new standard, particularly the changes in required disclosures, this research seeks to examine the impact the new standard will specifically have on the healthcare industry. By highlighting areas of significant challenge a better understanding will be gained of the impact health care service entities will experience as they transition to a new standard.

Business leaders of contracting companies in Qatar struggle to develop appropriate internal controls over revenue estimates to mitigate the risk of financial statement manipulation. Grounded in the internal control framework of the Committee of Sponsoring Organizations of the Treadway Commission, the purpose of this multiple case study was to explore strategies that business leaders responsible for financial reporting use to develop and implement effective internal controls for recognizing contracting revenues. Nine participants from 3 private contracting companies in Qatar who had implemented strategies to develop and implement effective internal controls for recognizing contracting revenues participated in face-to-face semistructured interviews. Through a process of methodological triangulation as described by Yin, observations and documentary evidence supplemented data collected through semistructured interviews. Different themes emerged through the analysis of data that involved coding narrative segments. The research findings included themes of control environment, control activities, systemized project budget, accounting standards compliance, and risk assessment and monitoring. Business leaders of contracting companies may benefit from the findings of this study by gaining awareness of the need to develop and implement effective internal controls for recognizing contracting revenues. Implications for positive social change could come from identifying internal controls that increase financial statement reliability, which could lead to increased access to capital and debt financing and improved employment opportunities in Qatar.

Title: Standardization - Implementation of Process Standardization in aDecentralized OrganisationBackground and problem: Developing mutual operations increase efficiency and facilitate management control, which is important for unit comparison in decentralized organisations. Many organisations worldwide choose to standardize their processes because of these advantages. But standardization is not without problems since it brings negative effects that need to be considered.Purpose: The purpose of this study is to compare the units within the company in order to identify differences and important factors when considering standardization. The study also intends to contribute to the knowledge concerning standardization by identifying essential factors for a successful implementation, based on how the company operates at present. This intends to result in recommendations for the company to use when standardizing their processes regarding POC.Methodology: This study consists of a qualitative case study on a company, which is in the process of implementing standardization. Interviews were performed in three of the company’s Swedish offices.Conclusion: The study shows that standardization will bring several benefits for the company and the recommendations are to proceed with the implementation process. The company must however take action in order to make the implementation possible. By introducing a mutual template for models, document best-in-class procedures and adopt them, set procedures for storing essential documents, and increase the knowledge and understanding for other units’ procedures and needs.

This study examines revenue recognition methods used by high technology firms for sales to distributors. Revenue is either recognized when products are delivered to distributors (sell-in) or when distributors resell products to end-users (sell-through). This is the first empirical study to examine the firms that use these revenue recognition methods and the quality of financial information reported under the methods. I use a logistic regression to compare 479 firm-year observations in the computer and electronic equipment industries that use either the sell-in method or the sell-through method. I find that firms with higher growth opportunities and strong corporate governance are less likely to use the sell-in method. In addition, corporate governance strength moderates the association between use of the sell-in method and both capital requirements and management incentive compensation. Using ordinary least squares regression, I also examine two proxies for financial information quality: the ability of accounting information to predict future cash flows and the association between accounting information and stock returns. Results of these regressions suggest that financial information quality is higher under a deferred revenue recognition method (sell-through). Specifically, the ability of accounting information to predict future cash flows and the association between accounting information and returns are both higher for sell-through firms than for sell-in firms. The results of this study suggest that systematic differences exist between sell-in firms and sell-through firms and financial information quality differs between the two revenue recognition methods.

I investigated whether implementing SOP 97-2, the revenue-recognition standard for the software industry, reduces earnings informativeness. This standard is particularly important for two reasons: First, its provisions coincide with provisions of SAB 101, the current general revenue-recognition standard. Second, the software industry provides a laboratory setting for examining multiple-element firms, whose revenue-recognition challenges keep mounting as more and more firms bundle multiple products and services. I found that implementing SOP 97-2 leads to additional revenue deferrals and a decline in earnings informativeness. However, the market prices these deferrals as revenues, as if these amounts had not been deferred. Moreover, the proforma earnings, which I calculated by undoing the revenue deferrals, more strongly correspond with market returns than do the reported earnings. My findings indicate that the accounting numbers calculated using the pre-SOP 97-2 revenue-recognition rules more strongly correspond with market returns than do those calculated using SOP 97-2. My findings should interest FASB in its project on developing a new revenue-recognition standard.