US Gap

Factual Questions
1

My company is involved in a contract to deliver a large software solution to a university in the uk. My company is uk based, we are a 3rd party supplier to the main contractor who is based in the US. We are delivering about 30% of the solution.

We are in final contract negotiations, I have limited input but have to be involved. I’m not really a contracts person, but someone has to represent.

Today an issue was raised which required my input.

Part of our solution will not be delivered for 12 months, we won’t get a PO for it until then. This apparently causes an issue for our US partners because of something called the US gap which surrounds revenue declaration.

The issue was worked around and mitigated, I’m not seeking advice here but I’m curious. What is US Gap explained simply and why does it exist ?

(I did take advice to make the correct decision at the time, but I don’t fully understand the concept or rational)

2

I think you mean GAPP, but not sure how it relates to what you are talking about. These are accounting rules that are used in the US, but I am not a CPA or Finance person.

3

No it is United States Generally Accepted Accounting Principles - US GAAP http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_%28United_States%29

4

That’s it, thanks.

5

The equivalent in the UK would be IFRS (international financial reporting standards). The revenue recognition rules are fairly similar between IFRS and US GAAP, but there are more specific guidelines in US GAAP.

If your company is not publicly traded it probably doesn’t matter as much, anyway.

6

In GAAP, revenue is recognized when the service is renderd - not paid for - so that revenues more closely match expenses in the same accounting period.