QUESTION
Critically review different international accounting standards that potentially allow software firms to recognize most of the value of the licensing contract as revenue in the quarter that the contract was signed. Assuming an Australian reporting jurisdiction, determine to what extent the Company complied with revenue recognition requirements. Did the accounting treatment adopted contribute to the culture at Computer Associates?
SOLUTION
For the determination of income the International Accounting Standard Board has developed a framework based on the two systems which are historical cost accounting and the other is fair value accounting (Cauwenberge, Bleede, 2007). This is the Comprehensive Income Project. The definition of comprehensive income as given by International Accounting Standard Board describes it as the change in equity of business enterprise not including the change occurring as a result of investments done by the company. Thus the comprehensive statement includes the net income and the items that have been left out and are not the part of income statement. These items can be the holding gain, loss due to foreign currency change in value. These have been included as these items along with the net income give the complete picture of any organization on its ability to generate profits and the stability of the firm.
Under the International Accounting Standard Board the sale of financial asset resulting in profit or loss shall be included in the comprehensive income. The impairment losses and foreign exchange losses or gains shall not be included till the given financial asset is derecognized.
The Standards classify financial assets into four categories, these include, financial assets at fair value, held to maturity investments, loans and the financial assets available for sale (FASB Statement, 1997).
After the amendment to the standards it was allowed for recognition to be measured at fair value.
The comprehensive income might result in loss or gain to an entity thus it can result in favor or against the executives as it may impact the bonuses. In case the comprehensive income is increased there will be chances of increased bonus for the executives on the other hand a reduction in comprehensive will be adverse for the executives as it may reduce the bonuses.
References:
FASB Statement, (June 1997): Reporting Comprehensive Income
Cauwenberge P V. , Beelde I.D. (2007). On the IASB Comprehensive Income Project: An Analysis of the Case for Dual Income Display. Abacus . Vol. 43 (1), pp. 1-26.
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