Revenue Recognition Guidance and the Potential for Fraud and Abuse

Analyzing Revenue
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Analyzing Revenue
Step one of the revenue recognition model involves drawing out a contract with the customer. A contract is an agreement between two or more parties that binds them to enforceable obligations (Harris, 2016). Step two involves the identification of performance obligations. When parties agree to exchange goods for some form of payment, they make a performance obligation. To identify the distinct performance obligations of the parties involved, an external entity has to be involved (Harris, 2016).
Step three involves the determination of the transaction price. The transaction price is the consideration that a party in the agreement should receive for transferring said goods or services (Harris, 2016). The consideration can be variable, fixed, or a combination of both. Step four is when the transaction price is allocated. If a contract has multiple performance obligations, the total consideration should be allocated to each obligation. Finally, step five is the recognition of revenue once performance obligations are met. When performance obligations are satisfied, revenue is recognized once the obligation is fulfilled (Harris, 2016).
Starbucks follows step one of the revenue recognition models by employing skilled and semi-skilled labor. For instance, Starbucks employs more than 346,000 people worldwide, of which there is a written/unwritten agreement between the employer and the employee on the provision of labor in exchange for salaries/wages.
Starbucks follows step two through its contractual obligations. Examples of Starbucks’ contractual obligations include debt obligations, operating lease obligations, and purchase obligations (SEC, 2019). In exchange for performing these obligations, the company gets credit, leases, and supplies. When deciding the price at which to issue dividends, Starbucks utilizes s...