‘Deprival value’ vs. ‘fair value’ measurement for contract liabilities: how to resolve the ‘revenue recognition’ conundrum?

Fair value vs conservatism? Aspects of the history of accounting, auditing, business and finance from ancient Mesopotamia to modern China

“…Penman is suspicious of deferred revenues and 'big baths' ('cookie-jar' accounting) but nevertheless insists that revenues and profits must be 'earned'-even though what this means of course remains one of the most fundamental accounting issues that has so far defied resolution by FASB/IASB (Stubben, 2010;Horton et al, 2011). At what point from the original gleam in an entrepreneur's eye to the final liquidation of the firm and settlement of all its liabilities is it sufficiently certain that revenue and profit have been earned?-cf.…”

“…But they have run up against the corresponding income measurement problems that derive from changes in interest rates, from changes in credit risk, and from uncertainty about the risks of failing to perform on obligations within the consideration obtained, and have begun to surrender the FV ideal to 'fixing' the problems along more traditional lines by adapting, but not abandoning, more traditional conventions in the manner outlined above. How far these approaches can be reconciled remains an open issue (Horton et al, 2011;cf. Nobes, 2011) but finding one overall solution that resolves all these issues is surely conceptually intractable.…”

“…Bromwich et al, 2010;Macve, 2010b;Macve, 2013b) and the issues over revenue recognition (e.g. Horton et al, 2011;cf. Nobes, 2011) and leases.…”

“…The latest FASB/IASB ED on revenue recognition (IASB, 2011c) is therefore against using FV as the Boards' members were 'uncomfortable' about this outcome (see e.g. Horton et al 2011;cf. Nobes, 2011).…”

“…Consider for example the difficulties that were faced by 49 See IASB (2011c). A deeper question would ask if it is now time to separate 'revenue recognition' and 'profit recognition' (Horton et al, 2011;cf. Nobes, 2011) as well as profit recognition and 'change in net assets' (Horton & Macve, 1996;.…”