James, Marianne L.
October 2015
Allied Academies International Conference: Proceedings of the In;Fall2015, Vol. 22 Issue 2, p6
Conference Proceeding
The primary subject matter of this case deals with the new revenue recognition standard issued jointly by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), which once effective, will supersede both U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) on all revenue recognition-related issues. The primary objective of this case is to help students learn and understand the major provisions of the new revenue recognition standard and explore its potential effects on the financial statements of a service provider. Secondarily, the case explores potential ethical considerations that may arise for accounting professionals implementing the new standard. The case has a difficulty level of three to four and can be taught in about 40 minutes. Approximately two hours of outside preparation are necessary to fully address the suggested case-specific, research, and ethics questions; which are largely independent, providing instructors with considerable flexibility. The case can be utilized in an Intermediate Accounting course to reinforce the revenue-recognition related concepts. It can also be used in an advanced-level course focusing primarily on the research components or in an accounting ethics course focusing primarily on the related ethical issues. Using this case can enhance students' technical, analytical, research, and communication skills and may provide opportunities for discussing ethical considerations in the context of revenue-recognition under the new comprehensive accounting standard. After years of collaboration and extensive due process, in May 2014, the FASB and the IASB issued their new accounting standard on revenue recognition. The U.S. GAAP version of the converged standard, Accounting Standards Update No. 2014-09, which is entitled "Revenue from Contracts with Customers," will be integrated into the FASB Accounting Standards Codification (ASC) topic No. 606 and supersede all currently existing GAAP on revenue-related topics (FASB, 2014). ASU 2014-09, which includes several appendices and exceeds 700 pages, is quite complex and may significantly affect revenue recognition for many entities. The case scenario deals with a fictitious midsize privately-held company that provides comprehensive sustainability-related consulting services to clients. Sustainability, which is defined as preserving resources for future generations while creating value for current generations, is an important aspect of many organizations' operations. Sustainability falls into three broad areas - environmental (ecological), social, and financial sustainability. The company background included in this case provides students with the opportunity to consider revenue recognition-related issues under the new revenue standard in the context of an industry that is enjoying rapid growth and increasing involvement by accounting professionals, both in the U.S. and globally. The specific revenue-related issues addressed in this case include long-term contracts, bundled services, variable consideration, and discounted future services; which represent issues that tend to require additional consideration under the new standard. This case explores the effect of changes to revenue recognition on the financial statements as well as related ethical considerations. In addition, the case may help students gain some insights into a growing industry which enjoys increasing involvement by accounting professionals. Use of this case may enhance technical accounting, critical thinking, research, and communication skills; and also enhance ethical awareness related to accounting choices.


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