Revenue Recognition Changes Caused Fraud

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Revenue Recognition Changes Caused Fraud There were 347 alleged cases of fraud involving public company according to Fraudulent Financial Reporting: 1998-2007 sponsored by Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2010) that were investigated by Securities and Exchange Commission (SEC) on May 2010, which is showing 53 increased in the number of fraud when compared to the 1987-1997 study (p.5). COSO’s result is a sad number in a 10 year period, which averaging close to 35 accounting frauds a year (p.5). COSO’S study shows out of the nearly 350 financial frauds investigated 60% were identified to involved improper revenue recognition and 89% were recognized the CEOs and/or CFOs involvement (p.5). COSO’s research…show more content…
The extent of opportunity, weakness, loopholes and gaps throughout the FASB GAAP codification on revenue recognition had to be tremendous to be able to effortlessly cook the books, as COSO’s study divulge CEOs and CFOs engineered or perpetrated most financial statement frauds (p.5). Accounting Principles The famous accounting scandals of late 1900s and early 2000s believed to cause the legislation, the SEC and FASB to issue changes and updates on its accounting principles on revenue recognition topics. American Institute of Certified Public Accountants (AICPA, 2002) outlined, AU Section 316 and Statement on Auditing Standard No. 99 (SAS 99) Consideration of Fraud in a Financial Statement Audit, as a guide for auditors to focus on two broad areas of fraud such as the fraudulent financial reporting and misappropriation of assets (p. 1722). The Securities and Exchange Commission (SEC, 1999) Staff Accounting Bulletin (SAB 101), Revenue Recognition in Financial Statements, states that revenue is realized or realizable and earned or recognize when persuasive evidence of an arrangement exist, delivery has occurred or services has been rendered, seller’s price to the buyer is fixed or determinable and collectability is reasonably assured (topic13). Any one of the (SAB 101) criteria needs to be meet before the company can recognize revenue (topic 13). FASB ASC 606 new guidance on the requirements for determination of revenue from contracts with customers (topic 606), as
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