The Effects of Exposing CPAs to Rationalizations Conscious and Unconscious Outcomes

This article reports on an experimental examination of rationalization and socialization phenomenon among CPAs. Rationalizations represent the cognitive justifications that individuals use to morally disengage their internal norms. Neutralizations are rationalizations made before and influencing the decision. Socialization within an organization represents the tactics used by a corrupting influence, such as a superior providing neutralizations to persuade subordinates to be complicit in corruption. Neutralization and Socialization are fundamental first steps facilitating normalization of organizational corruption. We find that exposure to neutralizations increases unethical intentions despite cautions against falling prey to them. This result is robust to two different morally intense and practically relevant ethical cases: signing off on non-completed tasks and facilitating premature revenue recognition. We also advance evidence that for many participants the influence of provided rationalizations is unconscious. The effects of exposure to neutralizations were robust among Millennials and Gen Xers, but not among Baby Boomers.

Do Revenues Matter More Than Earnings for Initial Public Offerings?

We demonstrate that investors in initial public offering (IPO) firms value revenues and that the number of U.S. Securities and Exchange Commission (SEC) revenue recognition comment letters issued on the S-1 registration statement are positively associated with reported revenues. We also find that IPO managers report revenues opportunistically in the fiscal year just prior to the offer. In additional analysis, we find that discretionary revenues are associated with significantly higher first day IPO stock returns but significantly lower 1 year stock returns. Our results are consistent with the incentives of managers to report revenues opportunistically outweighing the higher monitoring and regulatory scrutiny pre-IPO.

Revenue recognition and measurement in accordance with IFRS 15 and the Polish GAAP – a comparison

Purpose: The aim of this article is to assess the scale of differences between IFRS 15 and Polish GAAP in terms of revenue recognition. Methodology/approach: The methods used include studies of professional articles and legal acts, including the Polish Accounting Act, Polish Accounting Standards and relevant IAS/IFRS. Findings: The research has proven that Polish regulations can be categorised into two seg-ments. The first segment is KSR 15, which, compared to IFRS 15, contains very similar regulations regarding the general criteria for revenue recognition, including time point and measurement basis. The second segment comprises the Polish Accounting Act and KSR 3, which are based on international standards which are already superseded – IAS 11 and IAS 18, which dealt with revenue recognition over time. Practical implications: The article points out the differences between Polish and interna-tional regulation in terms of revenue recognition, which may play an important role for entities changing the basis for preparing their financial statements from Polish GAAP to IFRS. Originality: The article is the first attempt to compare the scale of similarities between the two sets of regulations in terms of revenue measurement and recognition

Tax Administration Issues on Revenue Recognition after IFRS 15 Adoption in Indonesia

This study aims to provide a brief and analytical reporting on IFRS 15 adoption in Indonesia into PSAK 72 related to Income Tax and Value Added Tax issues that may arise. We use literature studies to collect data and strengthen it with in-depth interviews of taxpayers, PSAK standard setter, tax consulting practicioner, and Directorate General of Taxes official. Our findings demonstrate the need for entities to consider taxation issues that may arise due to revenue recognition developments. Unconformity that may arise between accounting and tax requires the entity to explain these differences by documenting them early. Taxpayers need to underline the burden of compliance arising from the IFRS 15 adoption, which is the compliance costs in the form of mark-to-market and realization taxation. In implementing PSAK 72 to align with the realization principle in the Income Tax Law, the taxpayer compliance cost will increase by making detailed fiscal reconciliations. From the VAT perspective, the Tax Paying Entrepreneurs need to make contract adjustments with the counterparty to ensure that the time of supply is the basis for determining the VAT payable. This research presents the gap between accounting and taxation so that it can be a lesson for application in other countries.

Revenue Recognition and Real Earnings Management in Bosnian Construction Industry

This study explores revenue recognition and reporting expenses relevant to the stage of completion of the contract agreements. Literature suggests that the taxation effects financial reporting, realization of capital gains as well as revenue recognition. We argue that construction firms make use of these estimates to postpone revenue and value added tax recognition. The analysis grounds on the assumption that the value added tax effects timely recognition of revenues from construction agreements, where managers are incentivized to underestimating stage of completion and suppress recognition of gross earnings to better align emerging of the value tax related liability with contracted and expected inflows of cash. Results show that the revenue recognition is positively associated with reported income before tax and cost of material as a direct expense that can be allocated to the execution of construction agreements. These findings build baseline for future research that assesses effects of newly adopted standard IFRS 15 on real earnings management practice in construction industry of Bosnia and Herzegovina.

Sales Revenue As a Key Audit Issue in Russia (Part 2)

Organizations whose securities are traded with the organizers of trading in the securities market, which include public joint stock companies, are subject to mandatory audit. Th e auditor’s reports, in accordance with the requirements of International Standard on Auditing 701, issued to such organizations, must disclose key audit matters. Very oft en, auditors opt for such a key issue as “revenue recognition”. Th e article discusses situations when the choice of the topic of the key question on revenue seems insuffi ciently justifi ed, and the wording of the key questions is as identical as if their text was standardized, while the adoption of standard 701 had the opposite goal — information transparency, specifi city and reflection of the characteristics of the activities of each audited entity.

Using Smart Contracts to Establish Decentralized Accounting Contracts: An Example of Revenue Recognition

This study explored how to use smart contract technology to implement accounting principles for public use. To illustrate its feasibility, this study developed a design model of decentralized accounting contracts (DACs) and used revenue recognition to demonstrate how to apply the proposed model. Considering various scenarios of revenue recognition, this study adopted Solidity to program smart contracts for five use cases: (1) regular sale, (2) installment sale, (3) gift card sale, (4) a contracted sale with multiple performance obligations, and (5) a contracted sale with variable considerations over the contract price. The results showed that smart contracts can be created to fully address complex revenue recognition scenarios according to the Generally Accepted Accounting Principles (GAAPs). In conclusion, we discuss the implications of the study for business organizations, regulatory agencies, and the accounting profession.