Making the Right Call in Revenue Recognition
NACVA QuickRead, March 3, 2021
In an Analysis Group white paper that was republished in the financial forensics newsletter QuickRead, Vice President John Drum and affiliate T. Jeffrey Wilks (BYU Marriott School of Business) examine the complexities involved with revenue recognition decisions for financial reporting purposes. Revenue is a fundamental financial metric, but proper recognition and measurement of revenue is complicated, nuanced, and often subject to accountants’ judgment concerning contractual provisions. Understanding the significant judgment required for revenue recognition is critical when evaluating a company’s performance.
In “Making the Right Call in Revenue Recognition,” the authors discuss key concerns with the proper recognition and measurement of revenue. Referring to Topic 606 of the Financial Accounting Standards Board’s (FASB’s) Accounting Standards Codification (ASC 606), they illustrate several aspects of revenue recognition – milestone payments, purchase options, and bill-and-hold arrangements – using examples from contracts for the production and distribution of COVID-19 vaccines.