Research On Application Of Revenue Recognition Standards In Real Estate Enterprises Under New Revenue Standards

The Ministry of Finance issued the newly revised revenue standards in July 2017,drawing on the International Financial Reporting Standards IFRS15.Taking this as a background,this paper discusses the application of the new revenue recognition standards in real estate enterprises,analyzes the problems in the application process and proposes coping strategies.The first part of this paper introduces the background of choosing this topic and its significance.The second part reviews relevant references,covering revenue standards,motivations behind choices of accounting policies,and domestic research related to revenue standards.The third part first introduces the development history of revenue recognition standards in the real estate industry,then compares and analyzes the new revenue recognition standards and the old standards,and then puts forward strategies to apply the “Five-step Method” model in the real estate industry based on contract level.The fourth part introduces the current status of the application of the new revenue recognition standards in A-share listed real estate enterprises,and analyzes the motivations behind the real estate industry’s earnings management,such as capital market performance pressure,market value management and financing pressure,etc.This part lays the ground for the case study that follows.The fifth part takes Seazen as the main case to study.It first introduces the case and its revenue recognition policy,and then analyzes the financial impact of the application of the new revenue recognition standards and rationality of the application process.On the basis of a inquiry letter from SSE,this part also analyzes the reason why Seazen applied the new revenue recognition standards in advance.Finally,using Country Garden and Vanke as supplementary cases,this part also briefly analyzes the financial impact of adopting the new revenue recognition standards by these two enterprises.The sixth part summarizes the problems encountered by real estate enterprises in the process of adopting the new revenue recognition standards and coping strategies.The major problems are: whether the real estate enterprises meet the requirements for recognizing revenue based on a period in time,how to ensure rationality in the process of applying the new revenue recognition standards,whether the new standards will by used by enterprises as an earnings manipulation tool,and whether the application of the new standards can solve the mismatch between revenue and costs and the mismatch between revenue and cash flow,etc.The seventh part is the case summary and conclusion analysis.It summarizes the conclusion of this paper,and puts forward deficiencies and prospects of the research.The conclusions of this paper are as follows.Recognizing revenue based on a point in time and recognizing revenue based on a period in time are both in practice in the industry;recognizing revenue based on a point in time is mainly revenue recognition upon delivery,and recognizing revenue based on a period in time is recognition according to the “Five-step” model.From the case study,we find that Seazen’s disclosed explanation of the reason for the early adoption of the new revenue standards,and its disclosure on the identification and measurement of contract incremental costs and significant financing components in contract transaction prices and other related materials are flawed in integrity and adequacy.The application of the new revenue recognition standards improves Seazen’s financial indicators that help them cope with performance pressure from capital market,and needs related to financing and market value management,etc.We think Seazen probably used the new revenue recognition standards as a way of managing earnings.The application of the new revenue recognition standards has different financial impacts on different real estate enterprises;recognition will be advanced for some,postponed for some,and unchanged for some.Thus the specific enterprise needs to be analyzed to have a conclusion.This paper thinks revenue recognition based on a period in time suits the real estate industry,the enterprises should ensure rationality in the process of applying the new revenue recognition standards,and should not using the new revenue recognition standards as a earnings manipulation tool.The new revenue recognition standards don’t solve the mismatch between revenue and costs and the mismatch between revenue and cash flow.