Accounting Standards and Financial Reporting

This assignment delves into key concepts within accounting and financial reporting. It examines how US Telecommunication potentially misrepresented data by classifying operating expenses as capital expenditures, the definition of revenue according to IAS 18 and its distinction from income, and the factors influencing income statement content such as multi-step vs. single-step formats. The discussion also touches on the implications of these practices for stakeholders like investors and government.

Part B: Discussions
Discussion A:
US Telecommunication has misrepresented that data through recording the operating
expenses in the balance sheet through testing them as the capital expenditure. As per the defined
accounting standards, operating expenses refers to the expenses that are for one accounting
period and they must be debited to the profit and loss account to derive at the correct profit. As
the value of expenses was of very big amount it has certainly impacted the financial statements.
The value of capital assets has been increased by such amount that allows the company to take
the depreciation benefits at later years. The management has made this accounting policy in
order to take deferred benefits of the depreciation that reduced the income tax liability for the
companies. Through this accounting policy mainly government suffers a lot through decrease in
tax collection and also the investors will receive the wrong information about the company
(Buhayeu, n.d.).
Discussion B:
Definition of revenue is provided under IAS 18: Revenue recognition. As per the
definition given by the accounting standard, revenue is referred as gross inflow of various
economic benefits such as cash, receivables and other similar assets from the normal operation of
the business like sale of goods and services in normal course of operations, interest, royalties and
dividends. Interest is also the revenue and its recognition is defined under IAS 39. Income is the
bigger concept than the revenue and it is also defined under Framework for the Preparation and
Presentation of Financial Statements. Income referred to as something that is represented by
increase in economic benefits in any accounting period. It can be categories in the form of
inflows or enhance of value of assets or decrease in value of liabilities. Therefore increase in
value of equity except those contributed by the equity participants will termed as income.
Income includes both revenue and any gain in any accounting period (IAS 18, 2009).
Financial items that are categories as income are $25,000,000 revenue earned through
sale of software (Sale of Goods), $3,000,000 from downloading the updates (Sale of services),
$50,000 from interest (Income from receive of interest on securities). Discount receive on
decrease in liabilities is also income as it decrease the value of liability. Equity shares issued for

cash is increase in equity value but it is contributed by the owners of equity shares therefore it is
not termed as income.
Similarly, the financial items such as $25,000,000 from the sale of software; $3,000,000
from update downloads; and $50,000 in interest from investing on the short-term money market
are categorized as revenue items. But discount receive on early settlement of liabilities is not
regarded as revenue as it is not the sale of goods or services nor it is any interest income
received.
Discussion C:
The major factors that influence the content of income statement are the adoption of the
type of approach used in developing the income statement. The income statement can be
prepared through the use of multi-step or single-step format that impacts the presentation of the
income statement. In multi-step format, a business entry publishes the information regarding the
net sales, sales cost, gross income, selling and administrative expenses, operating income, pretax
income, taxes and reports net income after tax. However, in single-step approach, the business
entities reports only net income by not taking into account tax expenses. The comprehensive
income statements also takes into account the impact of foreign currency transactions on the net
income realized (IAS 18, 2009).

References
Buhayeu, A. n.d. The income and expenses recognition and measurement in the IFRS, US
GAAP and Belarus Instructions. Available on: http://vstu.by/ftpgetfile.php?
id=1286&module=files [Accessed on: 29 September, 2017].
IAS 18. 2009. [Online]. Available on:
http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias18_en.pdf [Accessed on: 29
September, 2017].