Which of the following statements about the value creation process is not correct?
A)The value creation process reflects the wide range of possible points at which revenue could be recognized.
B)Recognizing revenue early in the value creation process is more conservative than waiting until cash is received.
C)Recognizing revenue early in the value creation process involves more uncertainties and lower reliability about cash flows.
D)Permitting too much choice in accounting policies impairs comparability of financial statements.

Question

Quizplus · Accepted Answer

Recognizing revenue early in the value creation process is actually less conservative than waiting until cash is received, as it may involve more uncertainties and risks. Therefore, statement B is not correct. The other statements are correct. A) The value creation process encompasses all the activities and stages involved in creating and delivering value to customers or stakeholders. It includes research and development, production, marketing, sales, delivery, and customer service. Revenue recognition occurs at different points along this process, depending on the type of transaction, the terms of sale, the transfer of risks and rewards, and the timing of payment. B) Early revenue recognition may increase the likelihood of overestimating revenues, expenses, profits, and cash flows, especially if the assumptions or estimates used are not reliable or verifiable. Therefore, conservatism requires that revenue should be recognized only when it is earned and collectible, and that the uncertainties and risks of the transaction should be adequately disclosed. C) The reliability of cash flows associated with early revenue recognition may be lower due to various factors, such as credit risk, payment delays, product returns, warranties, and contingencies. Therefore, the key criteria for revenue recognition are the transfer of ownership, the transfer of risks and rewards, the existence of an enforceable agreement, and the collection of payment. D) Accounting policies should be consistent, feasible, relevant, and understandable, and should follow the applicable accounting standards, principles, and rules. Too much discretion or variability in accounting policies may create confusion, bias, or manipulation of financial information, and may impair the comparability and relevance of financial statements.

Which of the Following Statements About the Value Creation Process