A New Era in Revenue Recognition: General Dynamics and Ford

33 Pages Posted: 17 Sep 2018 Last revised: 27 Nov 2018

See all articles by Mark E. Haskins

Mark E. Haskins

University of Virginia - Darden School of Business

Luann J. Lynch

University of Virginia - Darden School of Business

Abstract

What had started out as an easy perusal of two recently issued 2017 corporate annual reports had morphed into a task of sleuthing when the reader had come across what some experts referred to as “the most historic accounting change to hit US capital markets in decades.” It appeared that the issue of when a sale was a sale for financial reporting purposes was not simple. Among a handful of early adopters of a new revenue recognition mandate for calendar year 2017 annual reports, beginning of the year retained earnings for Ford Motor Company (Ford) was adjusted $36 million higher while General Dynamic's was adjusted down by $301 million, both a result of their early adoption of the new revenue recognition guidelines.

Excerpt

UVA-C-2414

Rev. Nov. 19, 2018

A New Era in Revenue Recognition: General Dynamics and Ford

Maria's head hurt. Perhaps it was the combination of too much coffee and too little sleep. On the other hand, she had ultimately to admit it was probably due to all the numbers she was considering and striving to understand—12, 606, 2014-09, 15, 6, 919, 350, 180, 150, 311, 12-15-17, $ 36million, and negative $ 684million. What had started out as a hoped-for easy and enjoyable perusal of two recently issued 2017 corporate annual reports had morphed into a task of sleuthing, reading, and fascination. She had come across what some experts referred to as “the most historic accounting change to hit US capital markets in decades.” It appeared that the issue of when a sale was a sale for financial reporting purposes was not as simple as she had assumed.

She jotted down some numbers and added an appropriate but brief notation by each.

919 was the number of public companies that had to correct their financial statements for one or more of the six years from 1997 through 2002, where 350 of those restatements were a function of misreported revenues.

. . .

Keywords: revenue recognition, full retrospective approach, modified retrospective approach, revenue recognition practices, financial statement analysis

Suggested Citation

Haskins, Mark E. and Lynch, Luann J., A New Era in Revenue Recognition: General Dynamics and Ford. Darden Case No. UVA-C-2414, Available at SSRN: https://ssrn.com/abstract=3246237

Mark E. Haskins (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4826 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/haskins.htm

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

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