a Overview

Until comparatively recently, the topic of revenue recognition was low-profile. Enron and a number of other scandals and controversies changed all that. Revenue recognition is now high up the standard-setting agenda. This initial section considers some of the regulatory developments briefly. These are then examined in more detail in the remainder of this chapter.

b Companies Act 1985

The Act defines turnover as " the amount derived from the provision of goods and services falling within the company's ordinary activities, after deduction of trade discounts ".

Where customers (whether retail or wholesale) are offered goods at lower prices than would normally apply, turnover should be recorded at the lower amount received. This principle has not always been followed some companies have previously reported turnover at "normal" selling price, with the discount included as a marketing expense. Examples of these are shown below.

c UK GAAP

There is no comprehensive standard dealing with revenue recognition. In the past, former standard SSAP 2 on Accounting policies did include some principles, but these did not constitute a rigorous and coherent reporting framework. Hardly surprisingly, the result was inconsistent and unacceptable reporting in the UK. Some of the issues were picked up by the Financial Reporting Review Panel (see 8.6 below).

The ASB's Statement of Principles, referred to in 8.2 below, does contain some useful general principles.

In July 2001, the Accounting Standards Board published a Discussion Paper on Revenue recognition. The original intention was that this would eventually result in a...