The short answer, yes. But I need to elucidate, don’t I.
I am a designated accountant, so it could be argued that I have a certain bias towards accountants who have gone through the hell of gaining a designation; as opposed to those who just sort of stumbled into the position.
We are to go through an audit next month March. I have already blogged about twit thinking it utterly unfair that she cannot take the week off for when the auditors are gracing us with their presence — as that is March Break, and dammit! cos she reproduced she has the right to take the week off. Anywho, we have auditors showing up to check into 3 main areas – revenue recognition, accounts payable controls, and fixed assets. I am responsible for 2 of those areas .. and guess what .. yes you guessed it, those two areas are the most tightly controlled and with the closest adherence to corporate policy — and Canadian GAAP, IFRS and GAAS.
I am responsible for Accounts Payable, via my A/P Clerk, and Fixed Assets. The latter mostly due to the fact that my two entities, that I reconcile, hold the lion’s share of the Capital Assets.
The area of greatest concern is that of Revenue Recognition. And as I do not work with Client Finance I am not responsible for it – except to question the Client Finance Team.
So the question is, what is revenue? Sounds rather simple doesn’t it. And yet the concept of revenue is not that simple. Just because you do a billing does not automatically mean you have revenue. There is a difference between billings & revenue.
Under IFRS/Canadian GAAP this is how Revenue is recognised:
Under IFRS, the revenue from the sale of goods is recognized when the entity has transferred significant risks and rewards of ownership to the buyer and no longer retains control or managerial involvement in the goods. This is similar to Canadian GAAP; however, EIC-141 details more specific criteria underlying these principles such as: the existence of persuasive evidence of an arrangement, the occurrence of delivery or rendering of services, and whether the seller’s price to the buyer is fixed or determinable
Sounds simple enough. Revenue is recognised when the entity has done all the work necessary to recognise it as such.
Twit is responsible for a small entity. The way her group does their billings is based on hours worked. This may sound simple enough. Get a client, assume that the project will take up to 300 man-hours. In the first month you have 200 man-hours so you bill 2/3 of the project to the client. But what if at some point your Account Management Team approaches the client and says they can’t do it within 300 hours but 500, the fee stays the same (it’s flat). So all of a sudden instead of 67% it is 40% which should be recognised. Twit sees nothing wrong with billing 67% as in her files the job is 300hrs and that is how she is doing her billings.
In essence twit has overstated her revenues. This is why we are being audited – they are questioning how we recognise revenue. Are we recognising too early or too late. It’s the timing of the Revenue Recognition which is at question.
Which goes to the beginning – is it worthwhile getting a designation. I believe so, as many of these accounting principles are drilled into us for years before we graduate. Twit has no designation. She has a BA in English Literature. How reading some Chaucer makes her a giant amongst Finance Professionals I’ll never fathom. But the idiot doesn’t realise that there needs to be a hard review of how revenue is recognised. And it isn’t just her entity – but all of them.