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Ready to fast track your knowledge of the accounting and auditing issues related to revenue recognition, including issues that are significant to the computer software and high-technology manufacturing industries? Whether you're preparing your company's financial statements or preparing for an auditing engagement, this Audit Guide provides you with the latest information on accounting and auditing issues related to revenue recognition, focusing on the computer software and high-technology manufacturing industries and related financial statement considerations.
Have you used the FASB Accounting Standards Codification™ (ASC) to maneuver through the new structure of GAAP? You'll find the helpful guidance you're accustomed to now fully conformed to the ASC, along with a clear explanation of the ASC's significance to the profession, numerical referencing system, and Internet-based research system.
Updated with conforming changes as of April 1, 2009, the guide includes relevant guidance contained in official pronouncements issued through that date, supplemented with specific "how-to" recommendations. The following new pronouncements are particularly significant to this guide and have been reflected in this edition:
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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Purpose and Applicability
Revenue recognition continues to pose significant audit risk to auditors and has contributed to perceived erosion in the integrity of the financial reporting process. In recent years, several high-profile incidents of improper revenue recognition attracted the attention of the business media and led to unflattering coverage. A substantial portion of recent litigation against accounting firms reported to the AICPA Securities and Exchange Commission (SEC) Practice Section Quality Control Inquiry Committee cite revenue recognition issues. In March 1999, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) released Fraudulent Financial Reporting: 1987-1997, An Analysis ofU.S. Public Companies. The report examines incidents of fraudulent financial reporting alleged by the SEC in Accounting and Auditing Enforcement Releases issued between January 1987 and December 1997. More than half of the frauds involved overstating revenues by recording them either fictitiously or prematurely. In August 2000, the Public Oversight Board's Panel on Audit Effectiveness, established in October 1998 in response to a request by the SEC, published its final report. The report included recommendations that the Financial Accounting Standards Board (FASB) and the AICPA's Auditing Standards Board (ASB) provide additional guidance on revenue. On May 1, 2002 the Public Oversight Board terminated its operations and the SEC Practice Section of the AICPA ceased existence on December 31, 2003, transferring is operations and oversight responsibility to The Center for Public Company Audit Firms, which commenced operations on January 1, 2004. Its membership is voluntary. On January 30, 2007, the center changed its name to "The Center for Audit Quality." More information can be found at www.thecaq.org.
The implications are wide reaching. Investor confidence has driven the unparalleled success of theU.S. capital markets, and a key component in creating that confidence is the confirming role of audited financial statements. In this guide, the AICPA's intent is to help auditors fulfill their professional responsibilities with regard to auditing assertions about revenue. This guide
| • | discusses the responsibilities of management, boards of directors, and audit committees for reliable financial reporting. |
| • | summarizes key accounting guidance regarding whether and when revenue should be recognized in accordance with generally accepted accounting principles (GAAP). |
| • | identifies circumstances and transactions that may signal improper revenue recognition. |
| • | summarizes key aspects of the auditor's responsibility to plan and perform an audit under generally accepted auditing standards (GAAS). |
| • | describes procedures that the auditormay find effective in limiting audit risk arising from improper revenue recognition. |
| • | provides guidance on auditing revenue transactions in selected industries not covered by existing AICPA Audit and Accounting Guides. |
The primary focus of this publication is revenue recognition for sales of goods and services (other than lending activities) by for-profit entities in the ordinary course of business. Revenue recognition for governmental and not-for-profit entities is beyond the scope of this publication.
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