Introduction
Team D Consulting was hired to provide consultation and describe recommendations for recognizing revenues and expenses for a company that manufactures aircraft
. The aircraft manufacturing company is called Murugesh. Murugesh is situated in Springfield in Denver. CEO of Murugesh asked Team D to come up with recommendations for recognizing revenues and expenses that are related to Murugesh. The recommendations are to be based on discussions on issues such as, revenue recognition methods, expense recognition methods, expensing of stock options and justifications for each of the recommendations. We have studied our task, done research to gather relevant information on the business that we are focusing on. And, as a result, we are hereby presenting our recommendations and justifications for each choice.
Revenue Recognition Method
Within Generally Accepted Accounting Principles (GAAP), there are multiple ways to recognize revenue. Depending upon which method is chosen, the financial statements may look drastically different even though economic reality is the same. It is very important to choose the appropriate revenue recognition method for a company. Irrespective of the method chosen, it is very critical not to report the revenues prematurely. This is what the Chief Accountant of SEC Lynn Turner mentioned in her remarks in 2001.
"the COSO Report notes that over half the frauds in the study involved over-stating revenues by recording revenues prematurely or fictitiously. These results are consistent with a study published in the August 2000 report of the Panel on Audit Effectiveness (also known as the "O'Malley Report") entitled, Analysis of SEC Accounting and Auditing Enforcement Releases, which f ...