Accounting Essay -- essays research papers

Revenue Recognition PoliciesThe purpose of this paper is to compare the revenue 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 enginee red ink products. These products are used principally infilteration/ silver-tongued flow applications, electromagnetic compatibility (EMC)testing, and electric utility communications and control systems. Thefiltration/fluid flow and EMC testing products are supplied to a broad baseof industrial and mercantile 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 princip les,management must make careful estimates in preparing the fiscalstatements. These estimates are for anticipated contract be 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 recognized on commercial gross revenue when products are shippedor when services are performed. Revenue on production contracts arerecorded when specific contract terms are fulfilled. These amounts are pertinacious either by the units of production or delivery method actings. Revenuesfrom cost reimbursement contracts are recorded as costs are incurred, plusfees earned. Revenue under semipermanent 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 port ion of the estimatedgross profit for each period based on progress to date. Progress to date isbased on tether 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 imitation 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. nutrition 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 important area is that a company likeAerosoni c 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 closely related in a businesssense, Aerosonic may have the incentive to push titles of products to thegovernment to meet target revenues. Auditors should take care indetermining whether or not the financial statements conform generallyaccepted accounting principles.