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Aicpa Case 96-07

In: Business and Management

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AICPA Case 96-07
Part 1
1. What is the authoritative literature that Reggie Lewis should be reviewed in judging whether MiniScribe’s revenue recognition practices were consistent with GAAP? Based on your review of the literature, do you agree with Reggie or his superior?

Reggie Lewis should review section 605 of the Accounting Standards Codification concerning everything surrounding revenue recognition. ASC 605-25-1 states that, “The recognition of revenue of an entity during a period involves consideration of the following two factors, being realized or realizable and being earned.” In terms of revenue realization, FASB Concepts Statement No. 5 states that, “revenue is realized when products, merchandise or other assets are exchanged for cash or claims to cash.” In MiniScribe’s case, by booking sales when goods are shipped to the warehouses rather than when they were shipped to customers to increase sales, they were not following the Accounting Standards Codifications guidelines of reporting revenues when earned. Based on these documents Reggie, and not his superior, is right to question the practices of MiniScribe in their effort to increase sales. 2. Assume you are in Reggie’s position. What would you do in the above situation? Explain in detail the rationale that supports your decision. As a part of your explanation, include a discussion of the major stakeholders of the company who would be affected by your decision.

Reggie is in an extremely tough position. While his superior’s main goals are to increase sales, Reggie should realize as a worker in the company that the goal should be to increase sales ethically and by the rules. Although it might not be what his superiors want, Reggie should tell them about their faulty practices in reporting revenue. Although his boss may see this as a lack of enthusiasm to increase sales on Reggie’s part, if his…...

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