ABC Corporation is a publicly traded company that provides IT services to various clients. As an auditor, you have been engaged to audit the financial statements of the company for the year ended December 31, 2022. During your audit, you noticed that ABC Corporation has recognized revenue from a project that is yet to be completed. You gathered the following information:

• The total contract price is $5,000,000, and the project is expected to be completed in 12 months.
• ABC Corporation has recognized $1,000,000 in revenue for the project in the current year.
• As per the contract terms, the revenue recognition should be based on the percentage of completion method.

Required:

a) Calculate the total revenue that should be recognized for the project in the current year based on the percentage of completion method.

b) Discuss the impact of the current revenue recognition practice on the financial statements and the potential consequences for the company.

c) Provide recommendations on how the company can improve its revenue recognition practices.