1. Topic II Contemporary Issues Shift gears Theory approach to GAAP Cases Start with important and changing area…..

2. Chapter 9 Income Understand the nature of income. Distinguish between matching and asset-liability approaches Recognize comprehensive income. Understand the problems in revenue recognition.

3. Income Concepts Start with…the phenomenon.. What is it? Basic Nature Survey says…

4. Income Concepts Past Definitions –A. Smith (Wealth of Nations, 1776) –JR Hicks (Value and Capital, 1939) Hard to apply….

5. Jeff and Jon Example Case

6. Philips Range Range of Concepts Psychic Economic PV Accretion Accrual Cash Objectivity vs conceptual reasonableness.

7. Importance of Income Role and Relevance –central core –basis for tax –guide to capital allocation –prudent conduct –Etc.

8. Two Approaches Accounting Income Approaches Matching Asset-Liability

9. Matching Approach Traditional Matching Revenues and Expenses Venture basis “Gospel of Matching” Pros and cons

10. Asset-Liability Approaches Earnings result as a consequence of changes in assets and liabilities. New view Exhibit 9.1 Pros and cons

11. Comprehensive Income Comprehensive Income: SFAC # 6 (1985). SFAS #130 (1997) Reporting Comprehensive Income Exhibit 9.2

12. Revenue Recognition Revenues earned continuously; recognized when major effort & realization So we measure continuous data discretely? Four models: –During production –End of production –Time of sale –Collect cash Revenue Controversy-hot topic

13. Revenue Recognition Dot.com revenue recognition problems

14. Income/Accounting Change Elliott et al* IT changing everything..

15. Elliott et al 3 Waves 1. Agriculture: -8000 to +1600 2. Industrial: 1600 to 1955 3. Information: 1955- now

16. Elliott et al Broken Model

17. Concerns & Update SEC Concerns L. Turner quote FASB revenue project Solomons 25 year perspective: no change!