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Hong Kong company audit on revenue recognition problem!

Released Date: May 31,2022 Article Source: HUANZE

When I was doing the audit of a company in Hong Kong, the customer asked about revenue recognition. The customer purchased machinery and equipment from abroad and transported it to the place designated by the customer to be responsible for installation, post-commissioning and maintenance. Contract signing covers equipment, installation and subsequent commissioning and maintenance. Customer collection and billing are confirmed as individual performance obligations. Later, when debugging and maintenance expenses occur, it is mentioned that costs occur but revenues have been confirmed before, which results in inter-period revenue costs and inconsistent profits.

 Be doingHong Kong corporate auditWhen the customer asked about revenue recognition, the customer purchased machinery and equipment from abroad and transported it to the site designated by the customer to be responsible for installation, post-commissioning and maintenance. Contract signing covers equipment, installation and subsequent commissioning and maintenance. Customer collection and billing are confirmed as individual performance obligations. Later, when debugging and maintenance expenses occur, it is mentioned that costs occur but revenues have been confirmed before, which results in inter-period revenue costs and inconsistent profits.

In the face of the above problems, the customer should first identify several performance obligations in the contract (i.e., several commitments). In the case of the customer, there are two performance obligations in the contract. Second, debugging and maintenance at the later stage. After identifying individual performance obligations, customers are required to reasonably apportion the contract transaction price to each individual performance obligation, and recognize the income upon completion of each individual performance obligation. If the revenue is recognized in accordance with the period, it shall be recognized according to the completion progress; if it is not in accordance with the period, it shall be recognized on time.

If the customer recognizes the revenue from the installation of the sold equipment, the contract liability shall be recognized upon receipt of post-commissioning and maintenance payments, and the revenue shall be recognized during the period of service provision.

Hong Kong company audit on revenue recognition problem!

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