Financial Reporting of Intel Corporation - Example

Intel Corporation Table of Contents Table of Contents 2 Executive summary to Board of Directors 3 Evaluation of US GAAP Model 4 Revenue recognition 4Lease valuation and recognition 5 Evaluation of IFRS Model 5 Revenue Recognition 5 Lease valuation and recognition 5 Similarities between US GAAP and IFRS 6 Difference between US GAAP and IFRS 7 Revenue recognition 7 Lease valuation 7 Evaluation of US GAAP and financial reporting of Intel Corporation 8 Lease valuation and recognition 9 Recommendation to Board of Directors 9 Reference List 10 Executive summary to Board of Directors The report highlights the issue relating to financial reporting of Intel Corporation. The report is produced in order to recommend the Board of Directors to rectify the mistakes relating the revenue recognition and lease valuation and recognition. The two accounting principles are defined and elaborated in the report so as to help the Board of Directors to understand the different frameworks of accounting policies. The difference between Generally Accepted Accounting Principle (GAAP) is International Financial Reporting System is depicted in the report with respect to revenue recognition and lease valuation. The difference will assists the Board of Directors to choose the right accounting principle for the company. Hence, the report highlights the major differences between application of IFRS and GAAP that helps in determining the right policy for Intel and where the company should amend. Evaluation of US GAAP Model United States Generally Accepted Accounting Principles (GAAP) framework identifies body of literature that consists reporting and accounting standards in United States. The new rules and publications denoted by Security Exchange Commission (SEC) under the supervision of federal securities forms an essential part of the GAAP framework. It is designed to incorporate both profit and non-profit oriented entities. The main reason as to why the companies concentrates in adopting GAAP lies in the fact that they permit the investors to have knowledge pertaining to their financial statements so that they can take sustainable decision for investment. Few concerns regarding GAAP incorporates measurement of economic activity, time period for preparation of financial statements, presentation and preparation of the economic views in the financial statements of the companies. These disclosures are prepared in accordance with the business activities (Bohusova, n.d.). Revenue recognition One of the major rules of GAAP is the revenue recognition. The revenue recognition of GAAP is broad and considers numerous standards that are issued by the Emerging Issues Task Force (EITF), Financial Accounting Standards Board (FASB), American Institute of Certified Public Accountants (AICPA) and SEC. The rules and regulations pertaining to GAAP are highly detailed and are industry specific. The codification of FASB has placed standard US GAAP in one place and has not made any impact on the nature and volume of the guidance. The guidance of US GAAP takes into consideration the software for revenue recognition that requires the vendor-specific objective evidence (VSOE) for estimating the fair value accounting and predicts the selling price. The time of transactions is very important under the rules of GAAP as it is related to the economic way of calculating the revenue. Intel Corporation follows GAAP rules for preparing its financial statements and thus aims at maintaining all the specific rules that are designed by the authorities (PriceWaterHouseCoopers, 2013). Lease valuation and recognition Under GAAP, the leases are applied to the equipment, plant and properties. The guidance is restricted to entities and tangible assets which can be compared with the lease guidance so as to check whether the rule is followed or not (PriceWaterHouseCoopers, 2014). Evaluation of IFRS Model International Financial Reporting System is devised by International Accounting Standards Board (IASB) for highlighting the profit oriented entities in the financial statements. The companies have to comply with the IPRS rules and interpretations so as to avoid non-companies which can lead to numerous problems. The new conceptual framework of IFRS is referred as the new point of reference for the preparers of financial statements (KPMG, 2013). Revenue Recognition IFRS concentrates on four revenue focused interpretations and two revenue standards. The wide viewed principles figured out in IFRS are applied without exceptions or guidance for the specific industries. IFRS does not rely on any revenue based software for using it in VSOE. It contains minimal guidance for industries. Lease valuation and recognition The lease guidance under IFRS applies to a number of things and is not restricted to only plant and property. The arrangement in IFRS guidelines can be fulfilled through the specific assets that convey an authority to use that asset. Under IFRS lease is defined as the either financing lease or operating lease. The lease characteristics are dependent on the risk and rewards which incidentally relates to the leased assets and is transferred from lessor to the lessee. Similarities between US GAAP and IFRS Both IFRS and GAAP relates to the financial aspects of a company. It highlights the rules that are prepared by the individual board’s of authorities that makes the guidelines stringent so that companies finds it hard to ignore any transactions that have already taken place. The definition of revenue in both cases is same and it indicates the gross inflow of income for the company during a particular period of operation. The sales of goods in both the cases are similar and it signifies that the risk and rewards are transferred during the preparation of the financial statements. The selling price is fixed at the delivery tome and collectability is assured by persuasive evidence within the arrangement. The rendering services to the customers can be measured reliably and is based on the contractual prices. The establishment of the prices is recognized from earlier and as the time passes by. Hence, both IFRS and GAAP indicate the same definition of rendering services (PriceWaterHouseCoopers, 2014). The criteria for long term contracts that are defined in revenue recognition are similar in both the cases. These criteria are compulsory to be met by the company. The fair value measurement pertaining to GAAP and IFRS are similar. The price received on selling the assets are transferred as the liability in an orderly manner. This transaction takes place between market participants. The price does not relate to the acquisition of the assets (KPMG, 2013). Difference between US GAAP and IFRS The difference between the guidelines of IFRS and US GAAP are huge. The difference between GAAP and IFRS are highlighted in context to revenue recognition and lease valuation. The difference is elaborated below: Revenue recognition The following table elaborates the comparison between revenue recognition of US GAAP and IFRS: US GAAP IFRS Revenue recognition category The revenue recognition process under GAAP is reliable only when the revenue sources are similar. The revenue recognition process under IFRS is reliable only when the future economic benefits flow to the enterprise. Rendering services for refund The value of revenue does not require discounting to the present value. The value of revenues requires discounting to the present values. Non-monetary exchange The revenues under GAAP are measured at fair value of services and goods that are surrendered. The fair value is only relevant when the goods have appropriate prices that are estimated properly. The revenue recognition under IFRs are measured when the fair value of assets are received and it is based on the estimates. Multiple- elements arrangements The consideration of arrangements is allocated to separate units that are based on the fair values of the items. The prices are regularly charged as the items are sold. The cost plus approach is applied under IFRS guidelines. Lease valuation US GAAP IFRS Definition The leasing guidance encompasses plants, equipments and properties that have limited exclusions. The leasing guidance applies only to plant and property. Arrangements The arrangement is specified only through the inception of specific assets which aims at conveying the right to use the assets. The condition is same as GAAP but there are few differences in the execution. Classification of lease The lease is classified as financial and operating lease. The lease is classified as capital and operating lease. Risk and Rewards The lease classification is dependent on the risks and rewards that are incidental to the owners of the leases. The same is with GAAP but the detailing is more complex and broad. The lease does not transfer all the rewards to the lease holders. Evaluation of US GAAP and financial reporting of Intel Corporation Intel Corporation follows GAAP rules for detailing its transactions in the financial statements. The net product revenue is recognised when the process of earning is completed. The process ends when there is an agreement with the customer, the delivery has occurred and also accepted. The pricing allowances are also recorded according to GAAP and the discounts are prepared based on the contractual arrangements with customers (Intel Corporation, 2014). The sales price reduction and obsolesce in technology in this industry, Intel defers product revenue and the cost related to sales from the component sales that are made to the distributor under the agreement. The agreement allows price protection until the distributors has sold the merchandise. The right of return attached to the goods and services generally includes stock rotation programs where the distributors have the ability to exchange products that are based on a number of qualified purchases that are made by the distributors (Intel Corporation, 2014). Lease valuation and recognition The lease valuation techniques of Intel Corporation comply with GAAP rules. Thus, the properties and equipments are included in the financial statements following the GAAP rules. Recommendation to Board of Directors Intel Corporation complies with the GAAP rules but it is seen that the basic difference between the assets and liabilities are not portrayed in the financial statement. The revenue recognition part of the company does not actually comply with the GAAP rules as it does not highlight the profit to a great extent. Thus the Board of Directors should highlight this issue and rectify the mistakes. Reference List Bohusova, H., no date. Republic Revenue Recognition under US GAAP and IFRS Comparison. [pdf] n.p. Available at: < http://acct5183group7.wikispaces.com/file/view/revenue+recognition+-+GAAP+vs+IFRS.pdf > [Accessed 1 July 2014]. Intel Corporation, 2014. Annual Report 2012. [pdf] Intel Corporation. Available at: < http://files.shareholder.com/downloads/INTC/0x0x650575/331fe577-728a-4232-b33a-7e590df53de8/Intel_2012_Annual_Report_and_Form_10-K.pdf > [Accessed 1 July 2014]. KPMG, 2013. Comparison between US GAAP and IFRS. [pdf] KPMG. Available at: < http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/IFRS-compared-to-US-GAAP-An-overview-O-201311.pdf > [Accessed 1 July 2014]. PriceWaterHouseCoopers, 2013. Similarities and Differences between US GAAP and IFRS. Available at: < http://www.pwc.in/assets/pdfs/sdmay2009.pdf > [Accessed 1 July 2014]. PriceWaterHouseCoopers, 2014. IFRS and US GAAP: Similarities And Differences. [pdf] PWC. Available at: < http://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/ifrs-and-us-gaap-similarities-and-differences-2013.pdf > [Accessed 1 July 2014]. Read More