Accounting for revenues

A framework for standard setting

James A. Ohlson, Stephen H. Penman, Yuri Biondi, Robert J. Bloomfield, Jonathan C. Glover, Karim Jamal, Eiko Tsujiyama

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

This paper proposes an accounting for revenues as an alternative to the proposals currently being aired by the FASB and IASB. Existing revenue recognition rules are vague, resulting in messy application, so the Boards are seeking a remedy. However, their proposals replace the traditional criteria-revenue is recognized when it is both "realized or realizable" and "earned"-with similarly vague notions that require both the identification of a "performance obligation" and the "satisfaction" of a performance obligation. Our framework aims for the concreteness that yields practical accounting solutions. It has two features. First, revenue is recognized when a customer makes a payment or a firm commitment to pay. Second, revenue recognition and profit recognition are combined, with profit recognition determined on the basis of objective criteria about the resolution of uncertainty under a contract, and then conservatively so. Two alternative approaches are offered: the complete contract method (where profit is recognized only on the termination of a contract) and the profit margin method (where a profit margin is applied to recognized revenues throughout the contract as the contract profit margin becomes clear. The latter requires resolution of uncertainty, so the completed contract method is the default.

Original languageEnglish
Pages (from-to)577-592
Number of pages16
JournalAccounting Horizons
Volume25
Issue number3
DOIs
Publication statusPublished - 2011 Sep
Externally publishedYes

Fingerprint

Revenue
Profit
Profit margin
Obligation
Revenue recognition
Uncertainty
International Accounting Standards Board
Payment
Remedies
Termination

ASJC Scopus subject areas

  • Accounting

Cite this

Ohlson, J. A., Penman, S. H., Biondi, Y., Bloomfield, R. J., Glover, J. C., Jamal, K., & Tsujiyama, E. (2011). Accounting for revenues: A framework for standard setting. Accounting Horizons, 25(3), 577-592. https://doi.org/10.2308/acch-50027

Accounting for revenues : A framework for standard setting. / Ohlson, James A.; Penman, Stephen H.; Biondi, Yuri; Bloomfield, Robert J.; Glover, Jonathan C.; Jamal, Karim; Tsujiyama, Eiko.

In: Accounting Horizons, Vol. 25, No. 3, 09.2011, p. 577-592.

Research output: Contribution to journalArticle

Ohlson, JA, Penman, SH, Biondi, Y, Bloomfield, RJ, Glover, JC, Jamal, K & Tsujiyama, E 2011, 'Accounting for revenues: A framework for standard setting', Accounting Horizons, vol. 25, no. 3, pp. 577-592. https://doi.org/10.2308/acch-50027
Ohlson JA, Penman SH, Biondi Y, Bloomfield RJ, Glover JC, Jamal K et al. Accounting for revenues: A framework for standard setting. Accounting Horizons. 2011 Sep;25(3):577-592. https://doi.org/10.2308/acch-50027
Ohlson, James A. ; Penman, Stephen H. ; Biondi, Yuri ; Bloomfield, Robert J. ; Glover, Jonathan C. ; Jamal, Karim ; Tsujiyama, Eiko. / Accounting for revenues : A framework for standard setting. In: Accounting Horizons. 2011 ; Vol. 25, No. 3. pp. 577-592.
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