Week 6

Revenue recognition is concerned with how and when to book income as a result of completing an earnings process..

GAAP has detailed revenue recognition rules with regards to real estate and software. IFRS rules are universal and abide by the 18 standards for all industries.

GAAP pay close attention to exceptions for specific types of transactions. GAAP stipulates that public companies should follow additional rules laid down by the Securities and Exchange Commission - SEC. IFRS does not.

For sale of goods: revenue can be recognized from if delivery has been made for a definite fee to be collected for GAAP. IFRS on the other hand recognizing revenue only when the risks and rewards of ownership have been transferred, and the buyer has control of the goods.

For Software services GAAP: you must wait to book or record revenue if there is payment refunds of previous payments, because you failed to deliver the unit, unless each unit has its own stand-alone value. IFRS: recognizing revenue upfront when some amount of performances has occurred, for Software service.

Construction Contract under GAAP the completed contract method. IFRS Is the percentage method. Construction must be completed before recognizing revenue. If it is a large construction company then the “percentage of completion method” is used, in which your revenue matches the percentage of work completed.

IFRS does not allow the completed contract method, however, it allows the “percentage of completion” method under certain conditions. IFRS also allows contracts to be combined or segmented.