COMPARATIVE ANALYSIS CASE (Continued)
(d) Change in accounting policy
Coke
Recently Issued Accounting Guidance for Revenue
In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts
with Customers, which will replace most existing revenue recognition
guidance in U.S. GAAP and is intended to improve and converge with
The Company will adopt ASU 2014-09 and its amendments on a modified
retrospective basis. We have closely assessed the new guidance, including
the interpretations by the FASB Transition Resource Group for Revenue
Recognition, throughout 2017. We have concluded that ASU 2014-09’s
COMPARATIVE ANALYSIS CASE (Continued)
As a result of electing certain of the practical expedients
available under the ASU, the Company expects there will be
some reclassifications to or from net operating revenues, cost of
goods sold, and selling, general and administrative expenses,
primarily related to the classification of shipping and handling
costs.
operating income.
The Company has also identified and implemented changes to
our accounting policies and practices, business processes,
systems and controls, as well as designed and implemented
Pepsi
Recent Accounting Pronouncements (one example)
In 2014, the FASB issued guidance on revenue recognition, with final
COMPARATIVE ANALYSIS CASE (Continued)
It also provides clarification for principal versus agent considerations and
identifying performance obligations. In addition, the FASB introduced
practical expedients related to disclosures of remaining performance
We are utilizing a comprehensive approach to assess the impact of the
guidance on our contract portfolio by reviewing our current accounting
policies and practices to identify potential differences that would result
from applying the new requirements to our revenue contracts, including
evaluation of our performance obligations, principal versus agent
considerations and variable consideration. We are substantially complete
with our contract and business process reviews and implemented changes
FINANCIAL STATEMENT ANALYSIS CASE—WAL-MART
Note to instructor: The requirements for this case relate to Walmart
accounting policies for revenue recognition prior to implementation of the
new revenue standard. The new standard and its provisions are addressed
in more detail in Chapter 18.
(a) (1) In the year of the change, Wal-Mart will reverse the revenue recog-
nized in prior periods for layaway sales that are not complete.
(b) By recognizing the revenue before delivery, Wal-Mart was recognizing
revenue before the earnings process was complete. In addition, if
customers did not pay the remaining balance owed, the realizability
(c) Even if all retailers used the same policy, it still might be difficult to
compare the results for layaway transactions. For example, what if
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
Caddie Shack Driving Range
Statement of Financial Position
May 31, 2020
Assets
Liabilities
Cash
***$15,100
Advertising payable
$ 150
Building
6,000
Utilities payable
100
Equipment
800
$21,900
$21,900
Analysis
The income measure of $2,450**** is most relevant for assessing the future
profitability and hence the payoffs to the owners. For example, charging
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Principles
GAAP income is the accrual income computed above as $2,450 (excluding
depreciation expense.) The key concept illustrated in the difference
CODIFICATION EXERCISES
CE2.1
(a) The master glossary provides three definitions of fair value that are found in GAAP:
(b) Revenue—Revenue earned by an entity from its direct distribution, exploitation, or licensing of a
film, before deduction for any of the entity’s direct costs of distribution. For markets and territories
in which an entity’s fully or jointly-owned films are distributed by third parties, revenue is the net
amounts payable to the entity by third-party distributors. Revenue is reduced by appropriate
CE2.2
The FASB Codification’s organization is closely aligned with the elements of financial statements, as
CODIFICATION RESEARCH CASE
Search Strings: concept statement, “materiality”, “articulation”
(a) According to Concepts Statement 8 (CON 8, Chapter 3): Qualitative
Characteristics of Accounting Information, “Glossary”:
(b) CON 8 refers to several SEC cases which apply materiality. Students
might also research SEC literature (e.g. Staff Accounting Bulletin No.
99), although SEC literature is not in the FARS database.
CON 8, Chapter 3. provides the following examples of screens that
might be used to determine materiality:
a. An accounting change in circumstances that puts an enterprise
in danger of being in breach of a covenant regarding its financial
condition may justify a lower materiality threshold than if its
CODIFICATION RESEARCH CASE (Continued)
However, the FASB notes that more than magnitude must be
considered in evaluating materiality:
The relative rather than the absolute size of a judgment item almost
always determines whether it should be considered material in a
given situation. Losses from bad debts or pilferage that could be
shrugged off as routine by a large business may threaten the
(c) SFAC No. 6, Paras. 20–21. The two classes of elements are related in
such a way that (a) assets, liabilities, and equity are changed by
IFRS CONCEPTS AND APPLICATION
IFRS2.1
While there is some agreement that the role of financial reporting is to assist
users in decision-making, the IASB framework has had more of a focus on
IFRS2.2
The FASB differentiates gains and losses from revenue and expenses where
IFRS2.3
As indicated, the measurement project relates to both initial measurement
and subsequent measurement. Thus, the continuing controversy related to
historical cost and fair value accounting suggests that this issue will be
IFRS2.4
The IASB and FASB frameworks are strikingly similar. This is not surprising,
given that the IASB framework was adopted after the FASB developed its
framework (the IASB framework was approved in April 1989). In addition, the
IFRS2.5
Search Strings: “materiality”, “completeness”
(a) According to the Framework (QC 11): Information is defined to be
IFRS2.5 (Continued)
(b) According to the Framework (OB 17): Accrual basis
In order to meet their objectives, financial statements are prepared on
the accrual basis of accounting. Under this basis, the effects of
IFRS2.6
Marks and Spencer plc (per Note 1 – Accounting Policies)
(a) Revenue Recognition
Revenue
Revenue comprises sales of goods to customers outside the Group
less an appropriate deduction for actual and expected returns,
IFRS2.6 (Continued)
(b) Historical Cost
1) Property, plant, and equipment – The Group’s policy is to state
2) Intangible Assets-(B. Brands) Acquired brand values are held on
the statement of financial position initially at cost. Defined life
New Accounting Standards Adopted by the Group
There have been no significant changes to accounting under IFRS
which have affected the Group’s results for the current financial year.
IFRS2.7 (Continued)
(c) Revenue Recognition
Accruals for the sales returns, deferred income in relation to loyalty