Howard University Accounting Booking the Valuation Allowance Discussion

RESPONSE NEEDED TO JF (75-100)Accurate revenue recognition directly affects the validity of a company’s financial
reporting; hence it is vital (O’Brien, 2021). Given the numerous concerns regarding how
ineffective the guidance on revenue recognition was, it is imperative to review and revisit it.
Revenue recognition is a significant fraud risk, and there is a high chance of errors and
inaccuracies in revenue reporting regardless of the GAAP or IFRS accounting standards used.
The SEC has intensified its enforcement activities in this area due to possible fraudulent behavior
by company executives and employees. Moreover, financial leaders have reported that compare
to all other areas of financial reporting, the revenue recognition process is becoming more
challenging to manage, error-prone, and essential to financial statements (Kieso et al., 2019). The
FASB and IASB released a new standard on revenue recognition that offers a set of instructions
for choosing when revenue has to be reported and how it needs to be measured. Businesses
would also have to provide more financial data under the new standard (Lamoreaux, 2012).
Even with all these adjustments, the new guidance on revenue recognition may still not
please everyone. Therefore, recent complaints may be made, and reviewing and revisiting the
advice will help improve its additional weaknesses. Financial statements must be reliable and
consistent because revenue is one of the key metrics investors use to evaluate a company’s
performance (O’Brien, 2021). For this reason, financial executives should revisit the guidance on
revenue recognition to ensure they understand how revenues should be reported and measured.
For various transactions and industries, such as real estate, GAAP currently has complicated,
unique, and different revenue recognition rules. As a response, for economically comparable
transactions, other sectors utilize separate accounting. In conclusion, revising and reviewing the
guidance on revenue will help prevent accountants from forgetting and making mistakes when
reporting revenue.
Why the need to continue reviewing and revisiting the guidance on revenue recognition?
Recognizing revenue is an essential part of running a business. It dictates whether the company
is running at a profit or loss. Companies choose different ways to recognize revenues which can
significantly impact the financial statements and overall growth. The need to continue reviewing
and revising the guidance on revenue recognition from the fact that revenue is a fundamental
metric in financial reporting.
The aim is to bring consistency to revenue recognition, which can lead to inconsistencies in how
revenue is reported. Revenue recognition determines the circumstances under which revenue can
be recognized and how it should be accounted for. This framework must fall within the
Generally Accepted Accounting Principles (GAAP).
There are five steps to the revenue recognition process:
1. Identify the contract with the customer
2. Identify the performance obligation
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue
The need to continue reviewing and revisiting the guidance on revenue recognition helps to
address inconsistencies and weakness of the previous approaches; the revenue recognition
standard now applies to a wide range of transactions.
The objective of the new guidance is to establish principles to report useful information to users of
financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with
customers. The new guidance removes inconsistencies and weaknesses in existing revenue
requirements and provides a more robust framework for addressing revenue issues. The need to always
review and revisit the guidance is that systems and policies need to be ever forming and evolving to
match the new circumstances that are happening despite the situations that happened in the past. Some
times the way somthing is done needs to change and evolve and it is good to have a system where that
kind of need is accounted for. Revenue is one of the most important measures used by investors in
assessing a company’s performance and prospects. The new standard provides potential changes in
timing and measurement of revenue to be realized. The new standard will impact various for- profit
industries, some more than others, as well as non-profit entities.The basic premise requires revenue be
recognized in conjunction with the transfer of goods or services in the amount that accurately reflects the
consideration due the seller for the exchange of goods or services.

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