Iscussion 3mechanics of financial accounting
Analyze the need for managers to implement the mechanics of financial accounting.br /
Revenue recognition is one of the most manipulated principles when it comes to fraudulent behavior. Companies have been known (and found out) to recognize it earlier than necessary. The proper recognition often comes down to timing, and not to amounts. It is not always completely black and white and we will discuss this fact this week.br /
Please respond to all of the following prompts:br /
The American Institute of Certified Public accountants (AICPA) passed a rule making it harder for software companies to recognize revenue immediately from contracts. Both the FASB and the SEC strongly supported the move, which forces companies to meet strict criteria before recognizing revenue and, in many cases, has put downward pressure on reported profits. Some have complained that the stricter rules are making it more difficult for small software makers to raise capital and thus compete with the industry leaders.br /
Others, like Microsoft, the largest software producer, have supported the rule. Due to its market strength, Microsoft has had no difficulty raising capital and has followed very conservative practices with respect to revenue recognition. Indeed, some have estimated that at any given point in time, Microsoft may have roughly a billion dollars in deferred revenue waiting to be recognized.br /
Is Microsoft acting ethically when it supports rules, either through lobbying or financial support that makes it more difficult for small software manufacturers to compete in a market where Microsoft is an industry leader?
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