Current revenue recognition criteria are easy to talk about in class but coming up with concrete examples, using companies that students have heard of has always been challenge for me. Well not any more. A recent Accounting Onion post highlighted a great example of an issue with the criteria requiring pervasive evidence of arrangement before revenue can be recognized. This example came to light in a recent speech by Jim Doty (chairman of the PCAOB) but the names of the companies were left out. Jonathan Weil at Bloomberg did some digging around and found that the unnamed company is Motorola. Motorola signed a contract very early in the 4th quarter of 2006 but recorded the revenue in the 3rd quarter and hit the earnings target for the 3rd quarter with a $275 million boost to earnings. PCAOB criticized the audit firm involved for failing to obtain pervasive evidence of an arrangement for revenue recognition. You can find links to Jim Doty’s speech and Jonathan Weil’s article:

http://www.bloomberg.com/news/2011-06-09/dirty-secrets-fester-in-50-year-relationships-jonathan-weil.html

http://pcaobus.org/News/Speech/Pages/06022011_DotyKeynoteAddress.aspx