Improper Revenue Recognition
[Pages:53]Financial Statement Fraud
Improper Revenue Recognition
TREND ANALYSIS
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Revenue Overstatements
ANALYST QUOTE: "The top line is the bottom line for investors today."
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Premature Revenue Recognition
Holding the books open beyond the end of the reporting period to record large or unusual transactions before or after the end of reporting periods
Shipping products before a sale is consummated or indications that customers are not obligated to pay for shipments
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Premature Revenue Recognition (cont.)
Recording bill-and-hold sales transactions or other indications that sales are recognized in advance of shipment
Recognizing conditional sales depending on the availability of financing, resale to third parties, final acceptance, performance guarantees, and further customer modifications
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Premature Revenue Recognition (cont.)
Overstating percentage-of-completion revenues when there are uncertainties about the bona fides of the underlying contract
Improperly recording sales returns and allowances
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Premature Revenue Recognition (cont.)
Recording sales of products shipped in advance of the scheduled shipment date without the customer's agreement
Recognizing partially completed goods in the process of being assembled and shipped to customers as actual sales
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Premature Revenue Recognition (cont.)
The Revenue Recognition in Financial Statement guidance from the SEC indicates that revenue generally is realized or realizable and earned when all of the following criteria are met:
Persuasive evidence of an arrangement exists. Delivery has occurred or services have been
rendered. The seller's price to the buyer is fixed or
determinable. Collectability is reasonably assured.
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