L13 Notes_Part_3 - beginning of next year (cutoff)...

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© W.R. Knechel Common Types of Sales Misstatements Misclassification of Income: - Revenue v. gain v. extraordinary item (earnings quality) - Related Party revenue Recognizing Revenue Early: A. premature recognition of revenue: - Percentage of completion misstatement of cost to date or improperly allocate overhead - stuffing the distribution channel (Motorola) - operating and financing lease. B. Holding the books open – sale is booked but the merchandise is not shipped - bill and hold, ship in place, - holding the sales and cash books open
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© W.R. Knechel Common Types of Sales Misstatements A. Fictitious Sales - sell to salespersons, public or company warehouses, shipment of mock or obsolete inventory (shipped but not a sale) - 4 th quarter false nonroutine manual journal entries - Anticipate sales under blanket purchase agreements and write up fictitious invoices and shipping documents, - Create bill for legitimate customer, then reverse the entry at the
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Unformatted text preview: beginning of next year (cutoff) -Recording revenue on shipments after year end by backdating shipping documents, delay recognition of return (cutoff) B. Sales with conditions; rights and risks of ownership have not passed (shipped but not a sale) -guaranteed right of return -contingent sales C. Consignment Sales - a sale should not be recorded until the end-user purchases the product (shipped but not a sale) -Ex. Artist and art galleries D. Percentage of Completion (a sale but not shipped) W.R. Knechel Red Flags Companies may be up to hanky-panky when. .. Profits grow faster than cash flow Unpaid customer bills outpace sales Sales slow while inventories pile up faster Reserves against bad debts are cut sharply Gross margins increase or decrease dramatically Ways of calculating revenue and expenses change...
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L13 Notes_Part_3 - beginning of next year (cutoff)...

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