Revenue Recognition And Theories of Accounting free essay sample

The Joint Project Revenue recognition requirements in US generally accepted accounting principles (GAAP) differ from those in International Financial Reporting Standards (IFRSs); the former consists of broad concepts whereas IFRSs contain fewer standards, but applying the two main standards to complex transactions were difficult and needed improvement (Australian Accounting Standards Board, 2010). Accordingly, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) initiated a joint project to clarify the revenue recognising principles and to establish a common revenue standard that would: (a)remove inconsistencies in existing standards; (b)provide a sturdier framework for addressing revenue recognition issues; (c)improve comparability across entities, industries, and capital markets; and (d) require enhanced disclosures (IFRS Foundation, 2010). The proposed new standard would clarify recognition, measurement and disclosure of revenue. If adopted, revenue would be recognised when goods or services, or both, are transferred to the customer (IFRS Foundation, 2011). In contrast, current approach to earning revenue is based on the income statement. We will write a custom essay sample on Revenue Recognition And Theories of Accounting or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Impact of Revenue Recognition Revenue reporting directly  impacts an entitys results of operations and financial position, therefore any changes in the revenue recognition model can have a fundamental consequence on a company’s results. Accordingly, the proposed model could have a significant impact on several industries. For example, the recognition of revenue for the licence of intellectual property is dependant upon the customer obtaining control of the asset. The proposals may result in some entities recognising revenue over the term of the licence instead of upon the granting of it, thereby delaying its recognition (PricewaterhouseCoopers, 2010). Importance of Revenue It is widely recognised that revenue is one of the most important items in financial statements and that revenue recognition is one of the toughest issues standard-setters and accountants face. Apart from its monetary importance, users of financial statements attach great value to revenue in making investment decisions on the basis of its trends and growth, evaluating the companys past performance and making predictions about its ability to generate cash flows in the future. Why has revenue been given such significance? Reflecting on this, the work of Hines (1988, 1991) can be considered. Hines stresses a perspective that ‘financial accounting practices are implicated in the construction and reproduction of the social world’, arguing that emphasising particular performance attributes such as profits, or elements like revenue which determine profits, gives legitimacy to organisations. Furthermore, Hines also adopted the view that accountants create the impression that things like revenue only exist once we decide to recognise them, thereby making them real-ised. Essentially it is we who have created revenue to be associated with transactions and events holding such significance and subsequently defining it as crucial in assessing performance. The Development of Models amp; Theories As for revenue recognition models, its development is supposedly grounded in the principles in the existing Conceptual Framework (CF) (Wustemann amp; Kierzek, 2005). The CF sets out major accounting objectives with concepts and general principles specified in the standards for particular types of transactions and events. The interaction of these and professional judgement can well be demonstrated in the area of revenue recognition, discussed later below. Although CFs are defined by the FASB as ‘a coherent system of interrelated objectives and fundamentals that can lead to consistent standards’, Hines (1989) suggested CFs are merely ‘a strategic manoeuvre for providing legitimacy to standard-setting boards and the accounting profession’. She believed the qualitative characteristics of comparability, completeness and consistency of accounting information could not be achieved due to the CF’s lack of theoretical foundation. The CF is an example of a normative theory of accounting because it prescribes guidance such as the qualitative characteristics financial information should possess, as contrasted with positive theories, which seek to explain and/or predict particular phenomena (Deegan, 2009). Both theories are developed on the basis of deductive reasoning, which relies upon the use of logic to develop arguments and related theory. Although typically all research and theories are value-laden, the prescriptive nature of normative theories means more value judgement and social biasness is involved in its development, which may be a reason for the apparent functional failure of CFs. Raymond Chambers (1957) was a distinguished contributor to normative theory; he developed the Continuously Contemporary Accounting theory that describes how financial accounting should be undertaken, suggesting that the most useful information about an organisation’s assets for the purposes of economic decision-making is information about their ‘current cash equivalents’. Alternatively, positive theories begin with some assumptions and, through logical deduction, enable explanations or predictions to be made, typically evaluated by considering how well these relate to actual observations. Watts and Zimmerman (1978) developed the Positive Accounting Theory, which seeks to predict and explain why managers prefer adopting particular accounting methods, but neither guides us nor tells us anything about current practice’s efficiency. Contrastingly, going backwards, early development of accounting theory relied on descriptive research based on the process of induction, which is the development of ideas or theories by codifying common accounting practices based on observation. Paton and Littleton (1940) were two notable theorists who supported this form of research. They introduced the revenue and expense view, which proposed recognising revenue when it is earned or realised and matching the related costs with those revenues, assuming profit accrues throughout the entire earnings process. As a result, accounting income does not have an intrinsic definition and is operationally defined as the result of applying those principles. However, standard-setters have since proposed changing from the revenue and expense view to the asset and liability view, which somewhat restricts the application of the realisation principle and the matching principle, in order to curb arbitrary judgements and to achieve a more consistent income determination (American Accounting Association). Shifts in Theory Evidently over several decades there have been shifts from one theory to another, such as from early positive theories to normative theories of accounting, and more specifically, from an income statement approach to that of a balance sheet-driven model for revenue recognition. In explaining the reason for this, consider Kuhn’s (1962) explanation of how knowledge development is revolutionary, whereby one theory is replaced by another as particular researchers denigrate an existing paradigm and advance an improved alternative. Principal to this conversion is the role of value judgements and the individual value systems they are founded on. Different researchers work from different paradigms that provide greatly distinct perspectives on the topic of research, based on their respective value judgements. Thus, any changes in their value judgements alter their paradigm, enabling them to gain insight into and possibly become proponents of newer concepts that they see as superior. The role of value judgements is pervasive in all choices and conclusions. In accounting for organisations, since many transactions and events are incomprehensively addressed in the standards, managers and accountants must often use judgement when applying accounting standards. The reliance on principles over rules results in an inconsistent application because it allows management to exert judgement differently in identical cases through the choice of dissimilar accounting methods (Wustemann, 2010). Another reason for the shift from different accounting models could be to improve accounting standards and the credibility of accounting itself (Heffes amp; Orenstein, 2005). Accounting standards and measurement principles, and hence financial statements, are full of management estimates that are the result of differing value judgements or attempts to structure transactions to attain a specific accounting result rather than properly reflecting its economic substance. This has led to accounting losing its integrity and true purpose of communicating relevant and reliable information. In the case of sub-prime mortgage loans and the sale of their cash flows through collateralised debt obligations (CDOs), the assumption that real estate prices would continue to rise was shown to be a false assumption, estimates of default rates were too low, and the adequacy of credit enhancements was overestimated (Walters, 2008). Financial statement information, based on these flawed estimates and assumptions, was only proven to be wrong when real estate prices began falling, leading to the collapse of the sub-prime mortgage market. Thus, the development of newer accounting models and standards aim for the specification of particular accounting treatment resulting in financial information that more accurately reflects a company’s position and performance. It aspires to increase the efficacy of the accounting function and prevent the occurrence of similar crises. Conclusion This essay explored the reasons for the emergence of the IASB-FASB joint project on revenue recognition as an attempt to improve financial reporting by clarifying the principles for recognising revenue and creating a single joint revenue recognition standard that companies can apply consistently. The proposed revenue recognition model could have a significant accounting impact for several industries because of revenue being one of the most important indicators of a successful business, which directly affects financial results. The reason for revenue being pivotal may be merely due to the emphasis given to it as a key performance attribute that signals justification of support for particular organisations, as suggested by Hines. Concerning revenue recognition models, their development is apparently based on the essential elements of the CF, which are thoroughly discussed by standard-setting constituents, broadly understood and generally agreed upon before issuance of related standards. However, the CF has been viewed as failing technically and functionally, its purpose seemingly ‘to assist in socially constructing the appearance of a coherent differentiated knowledge base for accounting standard’ (Hines). Revenue recognition models have thus gone through several changes due to ongoing discussions surrounding the appropriate accounting treatment of revenue and the value judgements underlying those dialogues. Such modifications endeavour to promote accounting standards’ and principles’ credibility, to assist the accounting profession recover from scandals that have led to its reputation being questioned.

Analytical Essay Sample on #8220;The Importance of Being Earnest#8221; by Oscar Wilde

Analytical Essay Sample on #8220;The Importance of Being Earnest#8221; by Oscar Wilde Oscar Wildes farcical comedy The Importance of Being Earnest is subtitled A Trivial Comedy for Serious People. The playwright himself penned this, so the reader is inevitably inclined to ask himself whether this deprecating subtitle is accurate. Despite the simple humor, the play is not trivial, but rather a biting and relevant social commentary on Victorian era values and principles that undoubtedly serious people can decipher within the lines of the comedy without feeling threatened about their own beliefs. In fact, the title of the play alone gives the reader some inclination as to what the story is about; the importance of being serious and resolute, which not coincidentally are two of the most important Victorian ideals. First performed in London in 1895, The Importance of Being Earnests plot centers on two couples who must overcome many hilarious obstacles on their journey to marriage. The play was critically acclaimed from its first performance and was instantly accepted by the public; a foreshadowing of the stories timelessness. Underlying the story line, Wilde illustrates the polite conventions and restrictions of Victorian society (Worth 126). This is aptly by Wilde in his droll depictions of aristocratic British men and women at the end of the nineteenth century. Despite his critical tone, Wilde does not alienate the members of his audience, but rather sheds light on the absurdity of societal traditions, such as courtship, engagement and marriage, while at the same time reaffirming the beliefs of his audience. To explore Wildes criticism of the absurdity of British culture and its implications in modern life, one must first examine the characters and plot of The Importance of Being Earnest. The two central figures are Jack and Algernon who are friends in spite of their seemingly artificial oppositions. Jack is a responsible, serious man who firmly announces his intentions of marrying Gwendolyn from the very beginning of the play. Algernon, on the other hand, is depicted as a sly, deceptive, yet likeable man who according to his aunt, has nothing, but looks everything (Wilde, act 3, 497). The two men, who the audience later discovers are brothers, are actually not as different as they first appear. Outwardly, they act very differently and constantly criticize one another on his actions, but in reality, both have the same ulterior motive and acts solely for his own benefit. Jack pretends to have a brother so that he may travel to London to see Gwendolyn. Similarly, Algernon, despite his claim that marriage is extremely problematic (act 1, 446), pretends to be Jacks brother so that he may journey to the countryside to see Cecily, the girl he has never met but wishes to marry. Both men pretend to be named Ernest in order to impress Gwendolyn and Cecily (obviously another pun on the title of the play). Hilarity ensues in both action and dialogue in terms of what the characters continually call nonsense. Jack and Algernon both pursue women who could be labeled modern women (relative to the contemporary Victorian woman). Gwendolyn is well educated and very opinionated in her beliefs, as evidenced by her desire to not be labeled perfect because that would limit her intentions to develop in many directions (act 1, 441). Likewise, Cecily, while not as well educated, is steadfast in what she wants from Algernon, such as her insistence that his name be Ernest. Gwendolyn and Cecily create much of the comedic elements of the play through their relentless demands of Jack and Algernon. For instance, when in act three the women discover the deceptions of Jack and Algernon, they do not submissively forgive the mens antics, but rather refuse to speak to either man until he delivers an adequate explanation and apology. These young men about town and revolting daughters (15), called so by critic Peter Raby, create a distinct dichotomy to the stern Lady Bracknell and Miss Prism, Cecilys governess. There is a sense of old society versus new society whenever Jack, Algernon, Gwendolyn, and Cecily interact with the older characters. As Gwendolyns mother and Algernons aunt, Lady Bracknell is excessively concerned with image and money. When she hears of Jacks desire to marry Gwendolyn, she questions him about his financial wellbeing and his personal habits. She is offended when she discovers that Jack has been adopted because it displays contempt for the ordinary decencies of family life (act 1, 450). Despite Jacks protest that his parental status has nothing to do with Gwendolyns happiness, Lady Bracknell refuses to give her approval of the engagement because in her superficial world, everyone is forced to live in an age of surfaces (act 3, 495). To Lady Bracknell, marriage has nothing to do with love and affection, but rather solely relies on the respectable social image that is created. Lady Bracknell is the stereotypical Victorian woman whose utmost concern is outward appearances and societal impressions. Money, status, and manners are the only necessities in life, without which one is destined to become associated with the detestable lower classes. In addition to Lady Bracknells archaic beliefs, Miss Prism and Doctor Chasuble also illustrate conventional Victorian ideals. It is evident that the two are in love, but repress their emotions because unruly behavior is not proper. Their relationship is an obvious contrast to Jack and Gwendolyns and Algernon and Cecilys, who admittedly are guilty of nonsense and reckless extravagance (act 1, 436). Surprisingly, in act three, the audience discovers that Miss Prism is the author of a novel of revolting sentimentality (act 3, 502) and more shockingly is an unwed mother. These revelations about Miss Prism blatantly contrast with Victorian acceptability. In spite of her deviations, Doctor Chasuble professes his love for her. This is yet another way in which Wilde portrays modern relationships and love. With his depictions of Bracknell and Miss Prism, Wilde creates an obvious paradigm between what a proper woman should be. Through their characters he is mocking the Victorian standard for woman because the audience can see that Gwendolyn and Cecily are truly the better women in thought and action. These ground-breaking elements contrast and spoof Victorian ideals, yet are subtle and humorous enough that the audience (especially at the time of the plays debut) is not offended by the plot or the characters. In todays world, there is nothing offensive about The Importance of Being Earnest, but it is necessary to keep in mind that compared to contemporary plays and novels, this is somewhat more modern. It still has the classic elements of a story line of that period: male-oriented, god-fearing, white, moneyed, and aristocratic (Raby 7). Although a majority of the characters live entirely for pleasure, the audience can still relate and enjoy the play. In such a hierarchical society where white men dominate, Wilde is careful not to offend or marginalize his target audience while launching a social critique. According to interviews (taken at the time of the plays production), Wilde adamantly insisted that The Importance of Being Earnest is not realistic because Realism is only a background, it cannot form an artistic motive for a play that is to be a work of art (39). In other words, reality has no bearing in his art, which perhaps is why he included the word trivial in his title. However, in relation to the play, is it accurate to say that reality is completely separate from art? Obviously Wilde recognized the absurdity of Victorian culture; otherwise, he could not have created a play whose humor is so relevant to both its contemporary and present-day audiences. The dialogue between characters, not the actions, is what makes The Importance of Being Earnest so humorous and transcendental (77). The characters revelations are true and consequently the farce is extremely comical. The Importance of Being Earnest set many precedents. It is one of the first plays to deal with modern issues, such as the New Woman. Wilde influenced many other artists to explore and critique societal norms and their ridiculousness. The Importance of Being Earnest will withstand the test of time through its satirical comedy and relevance to all audiences, because all audiences and readers, regardless of the time period, can relate to love, marriage, and the absurdity of society.