The possible revenue recognition points are the signing of the contract, the beginning of construction, the progress stages of the construction (gradually over the life of the contract), the completion of the project to the satisfaction of the customer, and collection of the cash. To postpone taxes, you would want to delay recognition of revenue until the next year, even though you have completed more than half of the project. Of the four criteria, the strongest argument might be that the costs will not be fully known until the customer has indicated that the work is satisfactory. Collectibility of the payment may also be somewhat uncertain. The Income Tax Act allows completed contract accounting on contracts of less than 24 months so at a minimum, this revenue could be recognized when the contract is complete.
The gain on the portfolio could be recognized in the year in which it occurs or when the shares are sold. To postpone taxes, revenue should be recognized when the shares are sold. That can be supported based on the fact that the selling prices of the shares are quite volatile and may very well fall back to, or even below, the original cost. In other words, the amount earned is not known until the sale actually takes place. This treatment is consistent with the requirements of the Income Tax Act which only requires that income from investments be recognized on disposition. Read more…
Over the last few years, several factors have caused concern over the reliability of corporate financial statements. The downturn in the economy put additional pressure on management to meet financial targets. The complexity of business structures and transactions and the difficult accounting standards have become too complex for the average financial statement user. The greed and dishonesty of some auditors and high-profile business failures have caused criticism and scrutiny of the relationships between accountants and their clients. The scandals surrounding the business failures have also diminished the public’s confidence in the accounting profession and company management.
Many organizations, including the Securities and Exchange Commission and the American Institute of Certified Public Accountants, have debated over the issues that led to the business failures. There have been countless suggestions of how to correct the problems that caused the failures. In an attempt to restore investor confidence in the capital markets, new rules for accountants and their clients have already been enacted. Numerous studies and proposals are also being considered to strengthen the reliability of audited financial statements.
The rules dramatically change the accounting profession by creating a new private regulatory structure, restricting the services auditors can provide, and imposing larger fines for violators of the rules. The rules will also require public companies to enhance their audit committees and obligate their top management to certify financial statements. The new rules are intended to protect investors by improving the accuracy and reliability of financial statements. The additional costs of compliance and risk will be passed on to companies through increased audit fees, insurance, and salaries, leaving less for investors. The rules intended to protect investors will unfortunately result in additional costs for investors. Read more…
The last few months have unearthed a huge number of accounting scams in the world and especially in USA. Although this is not a new phenomenon what has come as a rude shock to markets and investors is the scale and the blatancy involved in these recent scandals. Most of these cases belong to the erstwhile reputed and giant companies and the ‘cooking’ done by them has surely left the investor with a very bad taste in his mouth. What has certainly not helped is the fact that the numbers involved are in billions and the fall of the company so meteoric that the investor had no time to take corrective action.
This note aims to provide the reader with a deeper understanding of some of the critical issues involved in this subject and the entire discussion has been presented with a clear focus on the Indian context. The key issues covered in this note are:
· Spread of scams: Are the recent discoveries just small blots on a largely clean slate or is there sufficient data to suspect that the practices are more prevalent?
· Methods used in these scams: Are these scams a manifestation of the loopholes present in the current accounting standards or is it a case of illegal accounting done in connivance with the auditors?
· Reasons for these scams: What are the basic reasons for the occurrence of these scams? Is the market itself partly responsible for these scams?
· Possible solutions: Now that these scams have surfaced, what are the various options available with the government and the regulatory authorities to protect the interest of the investor in future? Read more…
This paper will inform you on the history of Accounting, from the beginning to the present. Even how the idea of Accounting came into existence and how it’s changed throughout time to become one of today’s mainstream jobs for the workplace.
Accounting is one of the oldest professions that there is. In fact, since prehistoric times families had to account for food and clothing. The first record of currency began with tokens in shapes to symbolize certain commodities such as grain, and other items people needed for everyday living. These methods were used for over 5000 years, before the first writings were found. Evidence of accounting records can be found in the Babylonian Empire (4500 B.C), in pharaohs Egypt and in the Code of Hammurabi (2250 B.C). Eventually, keeping records became a necessity for governments to sustain social order.
Now, it is the time of the Renaissance and the accomplishments of man are coming to new heights. This is when a man, by the name of Fra Luca Pacioli, also known as “The Father of Accounting” would come into play and express his ideas plus his theories on Accounting. Pacioli showed the world that Accounting was one of the most important inventions know to man. Born in 1445, Pacioli was a mathematician, who was also a friend of Leonardo da Vinci. He wrote and taught in many different fields, such as mathematics, theology, architecture, games, military strategy and commerce.
In 1494, he wrote a book called “Summa de Arithmetica Gemetria Porportionalita”, which was on Arithmetic; but included a section dedicated to the description of Double-Entry Accounting. The book became a major success and was translated from Italian to many other languages. Even through he was not credited for developing the system he was first to publish text on its practice. The system that he used included most of today’s accounting routines such as the use of memorandums, journals, and ledgers. He described the year-end, closing entries and proposed that a trial balance be used to prove a balance ledger. There would be little modification to Pacioli’s system for the next years. Double-entry Accounting is used to catch errors to accurately track the various streams of money in your business. This made banking reliable, and also enhanced trade and commerce. Read more…
There are two important trends in the financial reporting the U.S.’s GAAP and UK’s IAS. More and more countries are converting to the International Accounting Standards (IAS). The U.S. should learn the IAS it’s the future of financial reporting.
International Accounting Standards Committee (IASC) was formed in June 1973. Most countries recognize the need for more uniform standards and that’s how IASC was formed. IASC’s standard is to work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements. IASC lasted until 2001 and then came International Accounting Standards Board. In 1974 the first associate members admitted were Belgium, India, Israel, New Zealand, Pakistan and Zimbabwe.
In 1977 International Federation of Accountants (IFAC) was international professional activates. In 1981 IASC got complete control in setting of international accounting standards. Now members of IFAC became members of IASC. Read more…
