Running head: REVENUE RECOGNITION
Currently, several standards regulate accounting practices and reporting. These standards
are set and maintained by their governing bodies. For instance, the US follows the General
Accepted Accounting Principles (GAAP), while most other countries worldwide follow the
International Financial Reporting Standards (IFRS). With globalization, using different
accounting standards can present significant challenges when comparing performance between
companies that use different standards, thus necessitating convergence. Convergence, in
accounting, is considered the act of coordinating accounting and reporting standards of various
regulatory bodies towards achieving the goal of being consistent, which allows for easy
comparability between financial measures globally. The Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board (IASB) have integrated their
standards to arrive at a comprehensive global accounting standard.
Summarize in a few paragraphs the convergence process on revenue recognition: How long
did it take; was it contentious; what were the areas of disagreement as the convergence
process developed; and once the standard-setters converged, which side went further than
the other, in your opinion, to make the converged standard a reality?
Revenue is one of the essential metrics in a company’s financial performance. Revenue is
critical in analyzing a company's financial performance and comparing different companies'
performance. Before convergence, GAAP and IFRS employed distinct revenue recognition
techniques, which resulted in companies accounting and reporting differently for the same
transaction or entry. For instance, if a company based in the United States wanted to move
outside the US, they had to do an extensive reconciliation and adjustments to their financial
transactions from GAAP to conform to IFRS. According to Fangshu (2015), IFRS was criticized
for lacking adequate detail, while GAAP was considered to be overly analyzed and to lack and
sometimes confusing with conflicting rules. In January 2002, FASB proposed entering into a
Revenue Recognition Project to clean its GAAP standards to solve the differen...
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