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REVENUE RECOGNITION Introduction The FASB (Fin

The FASB (Financial Accounting Standards Board), in Statement of Financial Accounting Standards No. 16 issued in June 1977, stated that, with exceptions for prior interim periods of a current year, "all items of profit and loss recognized during a period, including accruals of estimated losses from loss contingencies, shall be included in the determination of net income for that period." That requirement appears to be straightforward and not subject to misinterpretation. In fact, however, the requirement is frequently violated, although the reason for such action is more likely to be purposeful manipulation of income and expenses, as opposed to a misinterpretation of the FASB requirement. This research examines the intent of revenue and expense recognition requirements, and considers some examples is the misapplication of these requirements.

Revenue and Expense Recognition Requirements and Their Intent

In the mid1970s, the American Institute of Certified Public Accountants (AICPA) Committee on SEC Regulations requested that the FASB consider the criteria for prior period adjustments, as those criteria were stated in APB Opinion No. 9 (Reporting the Results of Operations), and to provide further guidelines for the application of such criteria. APB Opinion No. 9 stated, among other things, that prior period adjustments were limited to "those material adjustments which (a) can be specifically identified with and directly related to the business activities of particular prior periods, (b) are not attributable to economic events occurring subsequent to the date of the financial statements for the prior period, and (c) depend entirely on determinations of persons other than management and (d) were not susceptible of reasonable estimation prior to such determination." APB Opinion No. 9 stated that such "adjustments are rare in modern financial accounting."

The AICPA request to the FASB was "prompted by Securities and Exchange ...

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REVENUE RECOGNITION Introduction The FASB (Fin. (1969, December 31). In LotsofEssays.com. Retrieved 07:28, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1684505.html