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MGCR 211 (10)
Chapter 4

Financial Accounting Chapter 4

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Management Core
MGCR 211
Erica Pimentel

Wenyun Zou (260511864) Aissata Sylla (260503710) Julie Morrissey (260526172) MGCR 211 (001-974): Introduction to Financial Accounting Chapter 4 Post Class Problem As outlined in CGI’s financial statements of the year ended September 30, 2010, CGI’s revenue is generated through both information technology services (outsourcing, systems integration and consulting, software licenses, and provision of maintenance) and BPS. Therefore, their policies for revenue recognition differ within these areas and will be examined individually in this report in their likely impact on the “reported earnings” of the firm. As stated under the company’s revenue recognition policy of “work in progress and deferred revenue”, CGI recognizes revenue when there is “persuasive” evidence of an arrangement, the fee is “fixed or determinable”, and collectability of revenue is somewhat secured. This follows closely with the revenue recognition for the sale of goods at the time of sale, as well as adhering to the basic revenue recognition criteria in that there is probable inflow of economic benefit to the company as well as a measurable amount of earnings. This method lowers the amount of uncertainty and limits the need of assumption. Therefore, the firm's reported retained earning reflects an objective situation where the earnings are not over or understated. Under the same policy, CGI does not recognized revenue until the acceptance of the payment in a transaction that holds any significant level of uncertainty. This reception of the payment does not necessarily have to be in the form of a formal client sign off. Since CGI is sometimes recognizing revenue before the customer actually pays, under this policy, it could be overestimating its retained earnings in the event of lack of reception of payment from its customers. Next, under “Outsourcing and BPS Arrangements”, CGI states it recognizes revenue (at the contractually states price in its arrangements) from outsourcing and BPS only as the services are provided. This section also states that the Company holds the judgment of whether to record revenue based on the average per-unit price during the contracted term or the total amounts billed. This statement in CGI’s policy shows a clear leeway for managerial bias since the Company can choose whichever approach depending on its situation to beneficially overstate or understate the its retained earnings. In this s
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