Question

1. Please explain revenue recognition abuse with examples.

2. What is MD&A in accounting?

Answer 1

Question No 1. Answer.

Revenue Recognition abuse is recognizing revenue prematurely or boosting up revenue into the current period to make company's financial statement heathier. A company should not book the revenue until it has delivered the goods or provided the services and the customer has accepted the same. Premature revenue Recognition occurs when company books a sale or service on its books even though the criteria for revenue recognition not yet been met.

Example:- Suppose that ABC&Co. signs a contract to deliver 100 panel boxes to XYZ Co. at a sale value of $50 million on 05 December 2017 and record sale of $50 million on its books in financial year 2017. It's called Revenue Recognition Abuse because in this case revenue is not still recognized and not met the criteria of revenue recognition which is as follows:

Revenue should be recognized when earning process is completed and an exchange has taken place.

Title of goods should be transfer from seller to buyer.

Risk and rewards should be transferred to buyer.

Question No.2 Answer

Management Discussion and Analysis is an essential portion of publicly held company's financial report in which management (high ranking officers who manage company) of company described company's performance over the previous twelve months. MD&A is required part of quarterly and annual financial statement of public company as mandate by SEC (Securities & Exchange Commission) It is not required for privately owned companies. In this section management of company use different financial and analytical tools to evaluate company's performance from every aspects and comments on overall performance of company. Also future projection, outlet,goals, policies and targets are mentioned in this section.

MD&A is an important source of information for the outsiders like investors, analyst and stakeholders who want to review company's financial performance, fundamental and management view.