The SEC Reported That Overstating Revenue and Recognizing Revenue Too

question 119

Essay

The SEC reported that overstating revenue and recognizing revenue too soon was the culprit in more than half of the financial reporting frauds in the United States. As such Staff Accounting Bulletin No. 104 provided additional guidance on revenue recognition. It emphasized four criteria for revenue recognition. What are these criteria?

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Definitions:

Order of Liquidity

The arrangement of assets on a balance sheet in order of the time it would typically take to convert them into cash.

IFRS

International Financial Reporting Standards, a set of accounting principles that establish how transactions and other accounting events should be reported in financial statements on a global scale.

Fair Value

The estimated price at which an asset could be bought or sold in a current transaction between willing parties.

GAAP

Generally Accepted Accounting Principles, a set of rules and standards for financial reporting used in the United States.