Judgments about whether revenue should be recognized are among the most contentious that an auditor faces. The following are situations in which the auditor will be required to either acquire additional information or make decisions about the amount of revenue to be recognized.

Required

1. Identify the primary criteria the auditor should use in determining revenue to be recognized.
2. For each of the following six scenarios:
   • Identify the key issues to address in determining whether or not revenue should be recognized.
   • Identify additional information the auditor may want to gather in making a decision on revenue recognition.
   • Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue.

Revenue Recognition Scenarios

1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year