• Fair Value
• Revenue Recognition
All 3 topics have significant implications for financial reporting, both for
those who prepare the reports and those who use them. One of the most
significant, and controversial, is whether or not the changes in the rules
will result in greater transparency in financial reporting.
Both Fair Value and Revenue Recognition have been undergoing significant
revisions under GAAP, ostensibly for the purpose of providing greater
transparency. At the same time, the SEC has declared their intent that the
US move towards conversion to IFRS (will a small “let’s wait and see” from
the newly appointed SEC Chair). Both Fair Value and Revenue Recognition
have similar, but different treatments under IFRS and GAAP and are part of
the Convergence Project’s efforts to bring the treatments closer together.
- Your assignment is to discuss transparency in financial statement
reporting in the context of the 3 topics. This should be YOUR opinion,
based on your exploration of the materials over the past 6 weeks (not
justa reiteration of what others think). You should defend, with
evidence of your learning, why there would be greater or less
transparency. How will each, as viewed independently, enhance or
decrease transparency? Discuss them from the point of view of
external users of financial statements such as individual and
institutional investors, bankers and analysts/ratings agencies. For
IFRS, discuss this from the point of view ofoverall increase or decrease
in transparency should the US chose to convert. For Fair Value and
Revenue Recognition, do you believe that the newest rules and guidance
under GAAP enhance or decrease transparency for current users of the
financial statements? Then, assuming that the US moves forward and
mandates conversion to IFRS, do you think that the users of the
financial statements will gain or lose transparency in the areas of Fair
Value and Revenue Recognition, as compared GAAP? Discuss the main
differences and use specific Income Statement and Balance Sheet
items to illustrate your arguments. Do you think that if the US
convertsto IFRS, and its more principles based approach, that the US
might wind up with a secondary layer of “GAAP like” rules because
judgments are perceived as unreliable and incomparable? Why or why
not? You may takeinto consideration whether or not transparency is
an ideal that can never be achieved, or that with a careful evolution to
a single, international standard, that this will achieve the
transparency that readers of financial statements have long desired. - As MBA students, your future roles in business management will cross
many disciplines. These three topics are likely to have a significant
impact onyour roles. For example, accountants must learn and apply
new rules for preparing financial statements. Business Development
and Sales professionals may have to restructure contracts and how
they sell their products or services so that revenue can be recognized.
Those working for investment firms may have to sort out the “true
value” of “fair value” when analyzing potential acquisition candidates
for their portfolios. Select a role inan organization (perhaps one to
which you aspire) and discuss how one of these 3 topics (select only
one) will impact that role over the next 35 years. You may assume that
IFRS is adopted by the US during that timeframe. If you chose Fair
Value or Revenue Recognition, you may discuss this in the context of
current changes to GAAP rules, or the impact if IFRS is adopted. Just
be sure to clarify which scenario, GAAP or IFRS, you have chosen.
Instructions and guidelines for writing your paper.
This is an exercise to demonstrate your understanding of the topics
and the implications of the most recent or pending changes on
businesses and usersof the financial statements. The point of this paper
will be to communicateyour understanding of the topics and their
impact, in a business writing style. The clarity of your thought and
arguments should be able to inform andpersuade the reader about the
topics.