revenuerecognition

revenuerecognition - CalCPA Online | For Members |...

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CalCPA Online | For Members | California CPA Magazine September 2003 Revenue Recognition: Now, Later or Never? If You Skirt Revenue Recognition Rules -- It's Fraud by D. Paul Regan, CPA, CFE The issues that bear upon the details of how, when and in what amount revenue should be recognized are broad and extremely deep. When it comes to identifying transactions where revenue recognition exists, there are plenty of issues and rules governing the proper accounting treatment auditors and accountants should follow. Fraud Usually Begins Small, Somewhat Innocently Fraud is represented by intentional misstatements or omission of amounts or disclosures designed to deceive financial statement users. Financial statement fraud usually starts as a simple "stretch" that people expect to be reversed when actual results improve. This often happens when only a small amount of additional revenue is needed to meet expectations. Those involved believe that the stretch will be a one-time event. The participants are not usually involved in a grand plan or conspiracy-they simply rationalize the misstatements. But simple plans sometimes grow into more complex schemes that result in material misstatements of financial statements that sometimes cover several years of falsification and manipulation. Fraud is frequently accomplished by: z Manipulating, falsifying or altering documents from which financial statements are prepared; z Misrepresentation or intentional omission of events, transactions or other significant information in financial statements; and z Intentional misapplication of accounting principles relating to the amounts, classification, manner of presentation or disclosure. Why is Revenue Recognition So Important? In its October 2002 Report on Financial Statement Restatement , the GAO said that restatements for improper revenue recognition resulted in larger drops in market capitalization than any other type of restatement. In fact, eight out of the top 10 market value losses in 2000 related to improper revenue recognition. Of these 10, the top three lost $20 billion in market value in just three days. Highlights Fraud Usually Begins Small, Somewhat Innocently Why is Revenue Recognition so Important? An Overview of the Rules SAB 101: Revenue Recognition Guidance for Specific Issues Income Statement: Gross or Net? What's an Accountant to do?
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Some of the most common vehicles used to overstate revenue, according to the GAO report, include: z Sales contingencies were not disclosed to management; z Sales were booked before delivery was completed; z Software revenue was recognized before services were performed; z False sales agreements and documentation were created; and z Revenue was reported at gross rather than net. The GAO report determined that as a result of these improprieties:
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This note was uploaded on 10/05/2008 for the course AEM 2210 taught by Professor Little,j. during the Fall '07 term at Cornell.

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revenuerecognition - CalCPA Online | For Members |...

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