Tuesday, May 28, 2019
Accounting Essay -- essays research papers
Revenue Recognition PoliciesThe purpose of this paper is to comp atomic number 18 the gross recognition policies oftwo companies in the search, detection, navigation, guidance, andaeronautical systems industry. The two companies I have selected areAerosonic Corporation, and Esco Electronics Company. Esco Electronics Company is engaged in the design, manufacture, sale andsupport of engineered products. These products are apply principally infilteration/fluid flow applications, electromagnetic compatibility (EMC)testing, and electric utility communications and control systems. Thefiltration/fluid flow and EMC testing products are supplied to a liberal baseof industrial and commercial customers worldwide. At the present time,electric utility communications systems are marketed primarily to customersin North America. The four primary industry segments of Esco areFiltration/Fluid Flow, Test, Communications, and other.In order for Esco to conform with generally accepted accounting princ iples, focussing must make careful estimates in preparing the financialstatements. These estimates are for anticipated contract costs and revenuesearned during the life of the contract. These amounts affect the reportedamounts of assets and liabilities on the companys financial statements.Actual results could differ from these numbers.Revenues are recognised on commercial sales when products are shippedor when services are performed. Revenue on production contracts arerecorded when specific contract term are fulfilled. These amounts aredetermined either by the units of production or delivery methods. Revenuesfrom cost reimbursement contracts are recorded as costs are incurred, convinced(p)fees earned. Revenue under long-term contracts in which the previous twomethods are inappropriate, the percentage-of-completion method is used.Revenue under engineering contracts are generally recognized as certainmilestones are attained.The percentage-of-completion method recognizes a portion of the estimatedgross lettuce for each period ground on progress to date. Progress to date isbased on three factors. These three factors are the costs incurred to date,the most recent estimate of the projects total cost, and the most recentgross profit percentage. Progress to date is assumed to ... ...s these items as sales. Like Esco, Aerosonicfollows the percentage-of completion method to account for long-termengineering contracts. Revisions in costs and revenue estimates are reflectedin the periods in which the revisions are made. Provisions for estimatedlosses are determined without regard to the percentage-of-completion. Like Esco, Aerosonics financial statements are based heavily onmanagements estimates. To auditors, this raises a red flag. Auditors mustbe careful when conducting the audits of these particular companies. It israther easy, and conceivable for management to manipulate earnings tomeet projected totals. another(prenominal) important area is that a company likeAer osonic has one major customer, and that is U.S. government. Anotherimportant factor is that Aerosonic recognizes revenue when title transfers tothe government. Since the two parties are well-nigh related in a businesssense, Aerosonic may have the incentive to push titles of products to thegovernment to meet target revenues. Auditors should take care in ascertain whether or not the financial statements conform generallyaccepted accounting principles.