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Finance & Accounting
Pages 5 (1255 words)
Ibi Ryan Plc: Revenue Recognition and Earnings Management Revenue Recognition under IAS 18 The emphasis in auditing is not restricted to arithmetical accuracy. Appropriate application of accounting principles and disclosures is necessary for forming a correct view of the state of affairs.
Income encompasses both revenue and gains.” (ec.europa.eu, p. 2) Revenue: “IAS 18 defines revenue as ‘the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants” (ACCA, 2013.) Gain: “An increase in the value of an asset or property. A gain arises if the selling or disposition price of the asset is higher than the original purchase or acquisition price” (Investopedia, n.d.) Normally the word ‘profit’ is used in business context in the place of gain. It is also very important that that revenue and the related expenses should be matched with the accounting period, and this is called matching principle. “When the selling price of a product includes an identifiable amount for subsequent servicing that amount is deferred and recognised as revenue over the period during which the service is performed. The amount deferred is that which will cover the expected costs of the services, together with a reasonable profit on those services” (ACCA 2013). ...
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