WHEN companies should recognise revenues on their books is one of the most contentious and consequential issues in the staid profession of accounting. For simple sales of goods the timing is usually straightforward, but in the areas of services and long-term contracts it gets murky fast. Companies may manipulate the “top line” of their accounts—their revenues—say, by booking sales they are not yet sure of (to boost their reported profits) or not booking sales that they are certain of (to postpone profits, and the taxes on them).In Britain the controversy surfaced again after HP’s takeover of Autonomy in 2011. The American firm later took a big write-down on its purchase, blaming it in part on the British software firm having pumped up its reported revenues by counting expected subscription fees as current sales (the firm’s founder denied this).Revenue recognition is perhaps the biggest headache for investors trying to compare companies in different countries. The GAAP standard used in the United States is Byzantine, with more than 100 different protocols for various permutations of transactions and industries, whereas the IFRS rules applied in most of the rest of the world offer only broad guidance.Following 12 years of consultation, on May 28th the boards that control the two accounting systems released a new joint standard they hope will put these issues to rest....
from The Economist: Business http://ift.tt/1nGBVuc
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