Accounting Essay -- essays research papers

Revenue Recognition PoliciesThe purpose of this paper is to comp atomic number 18 the taxation recognition policies oftwo companies in the search, detection, navigation, guidance, andaeronautical systems industry. The two companies I gather in selected argonAerosonic Corporation, and Esco Electronics Company. Esco Electronics Company is engaged in the design, manufacture, sale andsupport of engineered products. These products ar used principally infilteration/fluid flow applications, electromagnetic compatibility (EMC)testing, and voltaic utility communications and control systems. Thefiltration/fluid flow and EMC testing products are supplied to a broad baseof industrial and commercial-grade customers worldwide. At the reach time,electric utility communications systems are marketed primarily to customersin northwestward America. The four primary industry segments of Esco areFiltration/Fluid Flow, Test, Communications, and other.In clubhouse for Esco to conform with generall y accepted accounting principles,management must collapse 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 sales when products are shippedor when services are performed. Revenue on production contracts arerecorded when specific contract terms are fulfilled. These amounts aredetermined either by the units of production or pitch shot methods. Revenuesfrom cost reimbursement contracts are recorded as cost are incurred, electropositivefees 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-complet ion method recognizes a portion of the estimated unwashed profit for each period based on progress to date. age to date isbased on three factors. These three factors are the costs incurred to date,the most(prenominal) 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. commissariat 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 liable for management to manipulate earnings tomeet projected totals. other main(preno minal) area is that a company likeAerosonic 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 close related in a businesssense, Aerosonic may have the inducement 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.