GAAP Revenue Recognition Consistency

Very Hard Financial Reporting Standards Gaap Framework

Consider a listed company, ABC Corp, which has prepared its financial statements under the Generally Accepted Accounting Principles (GAAP) in the United States. Recently, the company's auditors raised concerns regarding the consistency of revenue recognition practices in relation to its contracts with customers, particularly in light of significant variations in the timing of revenue recognition.

Under the GAAP framework, it is crucial for companies to adhere to the revenue recognition principles outlined in Accounting Standards Codification (ASC) Topic 606. In this context, which of the following statements best reflects the requirement for a company to maintain its revenue recognition practices while adhering to GAAP?

Revenue should be recognized as earned when it is realized or realizable and earned, regardless of the cash collection timing.

Revenue must be recognized consistently across periods and is subject to retrospective application when changes are made.

Revenue should only be recognized at the end of the contract term, regardless of when the service is performed.

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