Call now: 252-767-6166  
Oracle Training Oracle Support Development Oracle Apps

 
 Home
 E-mail Us
 Oracle Articles
New Oracle Articles


 Oracle Training
 Oracle Tips

 Oracle Forum
 Class Catalog


 Remote DBA
 Oracle Tuning
 Emergency 911
 RAC Support
 Apps Support
 Analysis
 Design
 Implementation
 Oracle Support


 SQL Tuning
 Security

 Oracle UNIX
 Oracle Linux
 Monitoring
 Remote s
upport
 Remote plans
 Remote
services
 Application Server

 Applications
 Oracle Forms
 Oracle Portal
 App Upgrades
 SQL Server
 Oracle Concepts
 Software Support

 Remote S
upport  
 Development  

 Implementation


 Consulting Staff
 Consulting Prices
 Help Wanted!

 


 Oracle Posters
 Oracle Books

 Oracle Scripts
 Ion
 Excel-DB  

Don Burleson Blog 


 

 

 


 

 

 

 
 

FAS 48 and income statements for publicly held corporations

Auditing Tips by Donald BurlesonOctober 30, 2015

 

Work in progress - incomplete

 

Also see:  Oracle-centric auditing for FAS 48.

 

Oracle eBusiness Suite is one of the world's most sophisticated Enterprise Resource Planning (ERP) packages, and it's important for all Oracle Financials Functional experts to understand how generally accepted accounting principles (GAAP) and the rulings of the financial accounting standards board (FAS) are implemented within Oracle Financials.

 

Lets examine one of the most important areas of financial accounting with Oracle Financials, the proper disclosure of income for corporations who sell retail goods with rights of return.

 

Disclosure of expected returns

 

In todays marketplace, manufactures rarely sell goods without rights to returns and hundreds of retail chains fill their stores with "borrowed goods", products which may be returned for a full refund.

 

While the world of financial accounting is built on hard numbers, accounting for unknown future events presents a unique challenge.  Financials accountants move away from hard number and enter the world of forecasting which is governed by probabilities and uncertainly.

 

The central question addressed by FAS 48 is the just and proper way to estimate an unknown 

 

Within publicly held manufacturers and distributors, a temptation exists to impress the investing community by expressing an "optimistic" forecast of low returns.

 

 

 

Inside FAS 48

 

Here is FAS No. 48, formally titled "Revenue Recognition When Right of Return Exists", originally dated June 1981.  While GAAP mandate that income be recorded when it is received, FAS 48 outlines an important exception for publicly held corporations who sells goods with full right of return.  In a nutshell, FAS 48 states the conditions for reporting returns:

If an enterprise sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

a. The seller's price to the buyer is substantially fixed or determinable at the date of sale.

b. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

c. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

d. The buyer acquiring the product for resale has economic substance apart from that provided by the seller.

e. The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

f. The amount of future returns can be reasonably estimated (paragraph 8).

FASB 48 6(f) only remotely addresses the issue of forecasting in a general sense and the term "reasonable" is the polestar and the FAS directly thrusts the determination of "reasonable estimates" upon the courts.

8. The ability to make a reasonable estimate of the amount of future returns depends on many factors and circumstances that will vary from one case to the next. However, the following factors may impair the ability to make a reasonable estimate:

a. The susceptibility of the product to significant external factors, such as technological obsolescence or changes in demand

b. Relatively long periods in which a particular product may be returned

c. Absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise's marketing policies or relationships with its customers

d. Absence of a large volume of relatively homogeneous transactions

The existence of one or more of the above factors, in light of the significance of other factors, may not be sufficient to prevent making a reasonable estimate; likewise, other factors may preclude a reasonable estimate.

 

As tax laws change, we see other pronouncements that appear to apply to this case, such as SEC Staff Accounting Bulletins 101 and 104, not to mention prior cases, industry comparisons, and related articles. 

 

Ultimately, the tax courts decide the interpretation of FAS 48, SAB 104 and current case law provides insights into the responsibilities of corporation to accurately estimate returns.

 

Income is reported when it is received

 

All introductory accounting students are taught to report income when it is received (realized, earned).  This was codified by SAB 101 (superseded by SAB 104 and later case law).   This article by Savient Pharmaceuticals notes the main tenet of reporting income as "realized":

SAB 104 states that revenue should not be recognized until it is realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met:

(1) persuasive evidence of an arrangement exists;

(2) delivery has occurred or services have been rendered;

(3) the seller's price to the buyer is fixed and determinable; and

(4) collectability is reasonably assured.

 

Estimating future returns

 

We see further guidance in FAS 48 relating to the entities ability to accurately estimate future returns based on historical information.  This is codified in FAS 5 "Accounting for Contingencies". 

 


 

 

��  
 
 
Oracle Training at Sea
 
 
 
 
oracle dba poster
 

 
Follow us on Twitter 
 
Oracle performance tuning software 
 
Oracle Linux poster
 
 
 

 

Burleson is the American Team

Note: This Oracle documentation was created as a support and Oracle training reference for use by our DBA performance tuning consulting professionals.  Feel free to ask questions on our Oracle forum.

Verify experience! Anyone considering using the services of an Oracle support expert should independently investigate their credentials and experience, and not rely on advertisements and self-proclaimed expertise. All legitimate Oracle experts publish their Oracle qualifications.

Errata?  Oracle technology is changing and we strive to update our BC Oracle support information.  If you find an error or have a suggestion for improving our content, we would appreciate your feedback.  Just  e-mail:  

and include the URL for the page.


                    









Burleson Consulting

The Oracle of Database Support

Oracle Performance Tuning

Remote DBA Services


 

Copyright © 1996 -  2017

All rights reserved by Burleson

Oracle ® is the registered trademark of Oracle Corporation.

Remote Emergency Support provided by Conversational