In order to develop a revenue recognition policy, it is imperative to understand:
a) Who has ownership of incoming customer waste shipments?
b) Who has the risks and control of the disposal process?
c) When does the agreement between Metropolitan and the customer take effect?
d) What does Metropolitan have to do to complete their earnings process?
e) When should revenue be recognized at Metropolitan for each of the above scenarios?
f) What is the appropriate accounting literature pertaining to revenue recognition?
1. Using your thoughts for the answers to the questions a-e, search the relevant authoritative accounting literature to find advice on when Metropolitan should recognize their revenue. For each scenario described above determine when the revenue for each type of contract should be recognized. Concisely state your opinion for each contract in order to convey this information to the auditors.
2. Prepare a draft of the portion of Metropolitanâ€™s footnote on significant accounting practices covering revenue recognition that would appear in the annual report. For guidance on what is included in the first footnote, review another public companyâ€™s footnote 1 on significant accounting practices.