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USASBE 2008 Proceedings - Page 0555 - page 5 / 23

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USASBE 2008 Proceedings - Page 0559

Issue Revenue Recognition: Warranty Costs Multi-Element Sales Contracts

Disclosure of Related Party Transactions—Transfer Pricing

Cash Flow Statements- Disclosure

TABLE 1 12 Key Accounting Issues in

Explanation Lack of detailed guidance on specific types of transaction (e.g. software, long-term contract, services sales involving rights of returns, warranties, and installation clauses) by PRC. Current GAAP allows for revenue recognition when significant portions of elements have not been completed. Disclosure is required under most standards. However, PRC GAAP does not consider state owned enterprises as related parties. Therefore, no disclosure is required for related party transactions if the other party is a state owned enterprise. Statement of Cash Flows is required under most standards. PRC GAAP allows for the inclusion of bank overdrafts in cash for cash flow statement presentation purposes. In addition, interest received/paid is classified as operating or financing by PRC GAAP. Cash Flow Statement present in Direct Method is required by PRC GAAP. Under the US GAAP, the company has a choice between Direct and Indirect Method.

China

Business Implication Revenue may be overstated when compared to an identical economic transaction reported in the US.

Related party transactions and transfer pricing schemes can inflate performance and lead to tax avoidance schemes.

Cash flows are affected by translation rates, timing of receipts and payments, and classification of specific items (e.g interest received or paid) and related party activities.

More detailed cash flow information is required to be disclosed under Direct Method as compared with Indirect Method.

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