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42 Cards in this Set
- Front
- Back
what is a top fraud risk? |
revenue recognition |
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regardless of GAAP or IFRS, the risk or errors and inaccuracies in revenue reporting is significant
T/F |
true |
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revenue from contracts with customers adopt which revenue recognition approach? |
asset-liability approach |
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accounting for revenue based on the asset or liability arising from contracts with customers |
asset-liability approach |
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why are contracts analyzed? |
- contracts indicate terms and measurements of consideration
- without contracts, companies cannot know whether promises will be met |
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five step process for revenue recognition |
1. identify the contract with customers 2. identify the separate performance obligations in the contract 3. determine the transaction price 4. allocate the transaction price to the separate performance obligations 5. recognize revenue when each performance obligation is satisfied |
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what is the revenue recognition principle? |
recognize revenue in the accounting period when the performance obligation is satisfied |
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an agreement between two or more parties that creates enforceable rights or obligations |
contract |
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contracts can be... |
written, oral, or implied from customary business practice |
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contract asset = |
rights received (greater than) performance obligation |
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contract liability = |
rights received (less than) performance obligation |
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who obtains the rights to received consideration and assumes obligations to transfer goods or services? |
the company |
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rights and performance obligations gives rise to an... |
(net) asset or (net) liability |
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contract with customers: revenue cannot be recognized until when? |
a contract exists |
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contract with modifications: |
change in contract terms while it is ongoing |
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during a contract modification companies determine... |
- whether a new contract/ performance obligation results or - whether it is a modification of the existing contract |
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a separate performance obligation accounts for as a new contract if both of the following conditions are satisfied: |
1. promised goods or services are distinct
& 2. the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised g+s |
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no a separate performance obligation leads to |
prospective modification |
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during prospective modification a company should... |
- account for effect of change in period of change as well as future periods if change affects both
- not change previously reported results |
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under the prospective approach, a ______ price is used for sales in the periods after the modification |
blended |
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amount of consideration that company expects to receive from a customer |
transaction price |
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why is transaction price in a contract often easily determined? |
bc customer agrees to pay a fixed amount |
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in other contracts, companies must consider what about transaction price? |
variable consideration TMV non cash consideration consideration paid or payable to the customer |
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probability-weighted amount in a range of possible consideration amounts |
expected value |
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expected value may be appropriate when? |
if a company has a large number of contracts with consideration amounts |
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expected value can be based on |
a limited number of discrete outcomes and probabilities |
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the single most likely amount in a range of possible consideration outcomes |
most likely amount |
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most likely amount may be appropriate when? |
if the contract has only two possible outcomes |
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companies only recognize variable consideration if... |
1. they have experience with similar contracts 2. are able to estimate the cumulative amount of revenue 3. they do not expect a significant reversal of revenue previously recognized ...if criteria are not met, rev. recognition is constrained |
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in non cash consideration, companies generally recognize revenue on the basis of... |
the fair value of what is received |
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which elements, in general, reduce the consideration received and the revenue to be recognized? |
discounts, volume rebates, coupons, free products/services |
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allocating transaction price:
adjusted market assessment approach |
estimate the price that customers in that market are willing to pay for the g+s
may include referring to prices from the company's competitors for similar goods |
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allocating transaction price:
expected cost plus a margin approach |
forecast expected costs of satisfying a performance obligation (revenue) and then add an appropriate margin for that g/s |
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allocating transaction price:
residual approach |
a company may estimate the standalone selling price by (total transaction price - sum of observable standalone selling price) as promised in the contract |
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when does a company satisfy its performance obligation? |
when the customer obtains control of the good or service |
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change in control indicators |
1. company has a right to payment for asset 2. company has transferred legal title to asset 3. company has transferred physical possession of asset 4. customer has significant risks and rewards of ownership 5. customer has accepted the asset |
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revenue recognition issues |
right of return consignments repurchase agreements warranties bill and hold nonrefundable upfront fees principal agent relationships |
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two types of contract assets |
1. unconditional rights 2. conditional rights |
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unconditional rights contract assets |
receive consideration because the company has satisfied its performance obligation |
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conditional rights contract assets |
receive consideration because company has satisfied one performance obligation but must satisfy another performance obligation before it can bill the customer |
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companies disclose qualitative and quantitative information about the following: |
- contracts with customers - significant judgments - assets recognized from costs incurred to fulfill a contract |
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companies provide a range of disclosures: |
- disaggregation of revenue - reconciliation of contract balances - remaining performance obligations - cost to obtain or fulfill contracts |