installment payments on your What economical statement adjustments will Lucent have to generate to correct the revenue identification problems declared in late 2k? Lucent identified revenue once persuasive proof of an agreement is available, delivery has occurred, the fee is usually fixed and determinable, and collection of the resulting receivable, including receivables of customers where Lucent provides provided clients financing, can be probable.
Intended for sales produced from long lasting contacts, primarily those related to customized network solutions and network build-outs, Lucent generally uses the proportion of completion method of accounting.
After the event that SECURITIES AND EXCHANGE COMMISSION’S forced Lucent to restate the it is financial outcomes leading its stock price to decline 8. 5% in 2000, Lucent at this point records the sales income when the customers buy the Timing of earnings recognition is a crucial part in revenue recognition. According to US GAAP, income should be identified when it is realized/realizable and earned (FASB, 1984, Para. 83).
However , many software companies recognized income prior to merchandise delivery or service functionality in the past, which will potentially broken one or both of the conditions with the revenue acknowledgement principle. In response, AICPA released Statement of Position (SOP) 91-1 in Dec. 1991, which specified that in the event that collectability is definitely probable, license revenue must be recognized upon delivery and service income should be identified ratably above the service layout. The research issue for this article is: Just how revenue acknowledgement timing impacts attributes of reported revenue?
This kind of question is usually interesting because: 1) revenue recognition timing is important economic reporting and standard retrievers have dedicated much focus, 2) limited empirical research examining earnings recognition time has been done, 3) software program revenue identification is unique since transfer of rights is usually achieved by permit rather than on-the-spot sale of products. The main ideas for this content and their intuitions are: 1) Early income recognition increases the timeliness of reported earnings.
Its pure intuition is: early on revenue recognition better influences decisions by providing more well-timed information. 2) However , it is going to lead to better uncertainty in reported revenue. Its instinct is: adjustments may not be foreseen at the time of deal signing. 3) Time-series predictability of earnings is lower underneath early revenue recognition. The intuition is: early income recognition results in higher estimation error and for that reason reduces the time-series predictability.