‘Old Hens Make the Best Soup’: Accounting for the Earning Process and the IASB/FASB Attempts to Reform Revenue Recognition Accounting Standards

Abstract

By developing a synthesis of documents that have been released officially under the revenue recognition project jointly run by the International Accounting Standards Board and Financial Accounting Standards Board, this article points out that the earning generation and realization process over time (that is to say, the traditional accounting model) is in reality still playing an important role without losing its raison d'être. Although this model is supposed to have been consistently rejected since the outset on the premise of the adoption of the assets and liabilities approach amid the Boards' attempt to establish a new revenue recognition model, this article aims to reconfirm the significance and validity of this earning process – that is, the corporate process of generating and realizing earnings over time – as the representational focus of accounting for revenue recognition. Through an internal critique, our article summarizes and discusses successive Boards' proposals under the same asset–liability approach that they have been advocating for revenue recognition. Through a comprehensive comparative analysis (external critique), our article further criticizes the usefulness and feasibility of this approach, especially the transfer-of-control basis of revenue recognition which the Boards propose. It argues then for an alternative approach that combines asset–liability with revenue–expense accounting while re-establishing focus upon the earning process over time.