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This study aims to determine the accounting procedures and standards used by companies involved in flash sales transactions, particularly regarding revenue recognition. The researchers question whether companies uniformly apply certain standards to properly reflect revenues, given the absence of existing local standards for this new business model. The study analyzes companies' revenue recognition in light of IFRS and IAS 18 standards on revenues and discounts. It seeks to compare the standards used and evaluate their appropriateness for flash sales transactions. The researchers hope this provides guidance to companies on properly reporting revenue-related accounts for transparency.
Descriere originală:
a comparative study on the accounting procedures by flash sales market
Titlu original
A Comparative Study on the Accounting Procedures by Flash Sales Market Regarding Their Revenue Recognition (Revision)
This study aims to determine the accounting procedures and standards used by companies involved in flash sales transactions, particularly regarding revenue recognition. The researchers question whether companies uniformly apply certain standards to properly reflect revenues, given the absence of existing local standards for this new business model. The study analyzes companies' revenue recognition in light of IFRS and IAS 18 standards on revenues and discounts. It seeks to compare the standards used and evaluate their appropriateness for flash sales transactions. The researchers hope this provides guidance to companies on properly reporting revenue-related accounts for transparency.
This study aims to determine the accounting procedures and standards used by companies involved in flash sales transactions, particularly regarding revenue recognition. The researchers question whether companies uniformly apply certain standards to properly reflect revenues, given the absence of existing local standards for this new business model. The study analyzes companies' revenue recognition in light of IFRS and IAS 18 standards on revenues and discounts. It seeks to compare the standards used and evaluate their appropriateness for flash sales transactions. The researchers hope this provides guidance to companies on properly reporting revenue-related accounts for transparency.
A COMPARATIVE STUDY ON THE ACCOUNTING PROCEDURES BY FLASH SALES
MARKET REGARDING THEIR REVENUE RECOGNITION
A Thesis Presented to the UST-AMV College of Accountancy University of Sto. Tomas
In Partial Fulfillment of the Requirements for the Degree of Bachelor of Science in Accounting
By Group 8: Section 4A4 Marie Josephine Cabantog, Stephanie Janel Co, Jefferson Lexus Jonson, Eunice Lim, Natasha Monica Ong
Chapter 1: Problem: Rationale and Background Introduction Flash sale, or deal-of-the-day, is an ecommerce business model that had risen popularly in the internet today. Offering potential customers with high discounted products and services, the said model continually expands up to date, with many companies trying such tactic to win an easy customer by the hour. Websites offering a flash sales service let potential customer sign up for an account for them to buy different deals flashed in the home page. These deals are online coupons or vouchers that have a high discount rate for a product or service offered by different companies, often lasting for a maximum number of slots and hours in which it would be availed. For the past nine years, flash sales have existed and with different companies ready to edge out the competition, the said business model will continually grow, having forecasted to have a customer spending in the US of about $4 billion (Kelsey, 2011). Within these factors that questions about proper accounting procedures, such as revenue recognition standards, be raised not just on transacting companies but also to website companies offering these flash sales services. Being new to the market, the underlying question goes to the proper revenue reporting standard to be applied in the said business model and if such standard is being observed uniformly by companies today. Furthermore, it is also of question as to the transparency of each transaction and revenue recognized, having high discount rates offered by companies and having different cost that goes along with the transactions. The credibility of each transaction is the put to the test. Research Question This study was conducted for the purpose of determining what accounting procedure and what accounting standards are being used by the companies involved during the period of research. Specifically, the study attempted to answer the following questions: What accounting procedures and standards are applied by transacting companies and host websites in reflecting their revenues and discounts? Considering the absence of such transaction on existing local standards, are companies uniformly applying a certain standard that would reflect revenues properly? Do the host websites and the transacting companies share a principal/agent relationship? Theoretical Framework IFRS has some provisions regarding promotional ventures by a company to generate customers, such as loyalty programs, premiums and coupons, and gift certificate. However, these standards do not define, in its entirety, the proper accounting procedures done on flash sales transactions; flash sales transactions, being viewed as a combination of these standards. IAS 18, on the other hand, covers the general revenue recognizing standard; in this standard, companies are guided as to when revenue may be recognize or when should it be deferred.
FIG 1.1 General measurements of revenues according to IAS 18. IAS 18 shows the basic revenue recognition standard. This standard basically shows the accrual and/or deferral of revenue. There are two types of recognizing revenue, accrual and cash basis. Under accrual basis, the revenue is to be recognized by the seller only when the rewards and benefits related to the items sold or service provided is transferred, where the amount can be estimated reliably and when it is recoverable. Revenue is recognized in selling goods when the risk and rewards associated to the goods are transfered to the buyer. When goods are sold on credit, the revenue is recognized along with a receivable. In case of services, revenue is recognized on the completion of the service specified in the contract. Revenue is recognized on the basis of stage of completion of the services specified in the contract in case of the rendering of services. Any receipts from the customer in excess or short of the revenue recognized in accordance with the stage of completion are accounted for as prepaid income or accrued income as appropriate. Under the cash basis, revenue is recognized when the cash is received. The researchers, now, would want to have a comparative analysis of the standards used by companies practicing flash sale, and would want to cover the appropriateness of IFRS based standards on flash sales. As mentioned before, these IFRS based standards are limited to a certain nature of transactions. Flash sales, being new to the market, would test the effectiveness of said standardswhether they are sufficient to cover the transactions present on the said sales or there is a need to develop a new reporting standard more appropriate to use on such transactions. Though IFRS covers accounting for these types of transactions, the inherent limitation to it is in the nature of these incentive programs. IFRS based standards focuses on certain types of transactions
Conceptual Framework
In order to evaluate the companies accounting principles as to revenue recognition, the researchers have come up with a conceptual framework which will weight its differences. The researchers will draft a survey which will be based on generally accepted accounting standards. Through here, the researchers will seek for the differences of each company as to their revenue recognition. This will be then the basis for the researcher to evaluate each companys accounting principle in recognizing their Principle Company A Company B Accounting Principles vs. Accounting Principles Difference Based on this principle, the companys _______ s Accounting Policy is more appropriate. revenue. Using the generally accepted accounting principles, the researcher will be into a conclusion on which accounting principle is more appropriate in the flash sales market. Significance of the Study The researchers consider this study beneficial, not only to themselves, but also to different companies that are affected by flash sales through assisting them what proper accounting procedure to apply in different transactions covered by flash sales. This may help them have a better judgment on reporting properly the different accounts affected by each transaction, especially revenue-related accounts. The researchers also believe that this study is significant for companies hosting flash sales website. This may guide them in assessing each transaction faced by their website and how transparently they may report revenue for different stakeholders. This research may also be of interest by people in the Board of Accountancy (BOA). This research may help them analyze existing accounting standards and let them deem whether to create or modify existing standards for the fitting of flash sales transactions. This research is also may also be valued by those in the academe and the rest of the student body. This research seeks to sustain critical thinking on students and professors. This research hopes to generate opinions on both students and professors regarding transactions on flash sales. Mostly, this study would be beneficial for the development of the researchers as they gain more knowledge and expertise on the said issue. Scope and Limitations The research focuses on selected companies that use flash sales as a marketing strategy and selected companies that host flash sales. Furthermore, the study is only a comparative study about accounting procedures and accounting standards used by these companies. This study only seeks whether companies use a uniform standard as to the accounting of transactions, and if so, the study also seeks the said standard that is applied on those transactions. The research focuses only on the revenue recognition aspect and related aspect of each transaction. The study does not cover other accounting matter such as inventory accounting. Though the research seeks a uniform standard to be applied on transactions done in flash sales, especially revenue recognition standard, it does not aim to suggest a specific standard on the said matter, considering the age of this business model in the country and further developments in accounting procedures. Hypothesis 1. Both the transacting companies and host websites are using IFRS based standard in accounting for revenues under flash sales transactions. 2. Both transacting companies and host websites are not using IFRS based standards in accounting for revenues under flash sales transactions but use a common standard adopted from other GAAP. 3. In its absence in the local standards, there is no uniformity as to the standard being applied by each company on flash sales transactions. Assumptions 1. Companies may adopt other standards in the absence of such standard in the IFRS. 2. Companies are not limited as to the adoption of US GAAP and may adopt other GAAP. 3. There is an inherent limitation as to the use of IFRS based standards on the transactions done on these transactions. Definition of Terms 1. Flash sales: an online marketing activity that uses social media to transform discounted ecommerce promotions into social buying experiences (Boon, Wiid, &DesAutels, 2012). 2. IAS 37: It sets out the accounting and disclosure requirements for provisions, contingent liabilities and contingent assets, with several exceptions (IFRS, 1999). 3. IAS 18: outlines the accounting requirements for when to recognize revenue from the sale of goods, rendering of services, and for interest, royalties and dividends. Revenue is measured at the fair value of the consideration received or receivable and recognized when prescribed conditions are met, which depend on the nature of the revenue (IFRS, 1993).