The following is an extract from the Financial Reporting Review Panel website relating to the Wiggins Group
Question:
Revenue recognition
The 1999 accounts contained an accounting policy for turnover in the following terms:
Commercial property sales are recognised at the date of exchange of contract, providing the Group is reasonably assured of the receipt of the sale proceeds.
The FRRP accepted that this wording was similar to that used by many other companies and was not on the face of it objectionable. In reviewing the companys 1999 accounts the FRRP noted that the turnover and profits recognised under this policy were not reflected in similar inflows of cash; indeed, operating cash flow was negative and the amount receivable within debtors of £46m represented more than the previous two years turnover of £44m. As a result, the FRRP enquired into the detailed application of the policy.
Required:
Refer to the website and discuss the significance of the revenue recognition criteria on the publishedresults.
Step by Step Answer:
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott