Revenue Recognition Problems In The Communications Equipment Industry

b. Describe what it means for a business to "recognize" revenues. What specific accounts and financial statements are

“Advertisement R Us “is an analysis written by Melissa Rubin on a Coca-Cola ad that was printed in the 1950s. At the time of her analysis on the almost sixty-three year old ad, Rubin was still a student at Hofstra University. The ad that Rubin analyzed was from the August 1950 addition of the Bottler Magazine which was only given to employees of Coca-Cola. Most, if not all, workers of that time were Caucasian male, which explains why everyone in the ad are Caucasian and all but four are males. The four women in the picture are wearing dresses, which help demonstrate the time the ad was made versus how it would be made in the 21st century. In 1950 it was common for only Caucasian men to be portrayed in many ads because that was how the society

Revenue recognition is one of the top causes for financial statement restatements. In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process. Furthermore, revenue recognition is often prey to financial fraud.

a. Estimate the amount of revenue that Microsoft would have been reported in each year from 1996 through 1999 if Microsoft had not adopted its new revenue recognition policy in 1996.

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

Unfortunately, all those efforts have not been vindicated because of the following reasons: Accounting did not cause the recent corporate scandals such as Enron and WorldCom. Unreliable financial statements were the results of management decisions, fraudulent or otherwise. To blame management’s misdeeds on fraudulent financial statements casts accountants as the scapegoats and misses the real issue. Reliable financial reports rely to a certain extent on effective internal controls, but effective internal controls rely to a large extent on a reliable management system coupled with strong corporate governance. when management deliberately or even unlawfully manipulates business processes in order to achieve desirable financial goals and present untruthful financial reports to the public, accounting systems are abused and victims rather than perpetrators.

Based on these guidelines, revenue should not be recognized until it is realized or realizable and

Ignoring the revenue recognition principle could end up distorting an entity's balance sheet/statement of financial position. It is important to note that without adherence to this principle, it could be possible for entities experiencing a decline in sales to hide such an occurrence by modifying some items. In such a case, a refundable cash inflow i.e. a deposit used as security for the possible completion of an agreed upon task at a specified future time could be recognized as revenue. Under this principle, such an inflow should ideally be recognized as a liability and later as revenue only after the said task has been completed.

This subject company in this case study is WoolEx Mills. The top management team at the Mills had to act fast to prevent the accusations charged upon them, so that they may venture deep into the United States market. In the process, they had to act in a way that will present the company’s financial statements; cash flows in a way that they did not show any suspicious fraudulent activities. The type of fraud in this case study is known as manipulation of accounts which involves the act of offering the accounts in the way they are not in reality.

11. Accounts receivable turnover and days sales in accounts receivable for the last three years:

Timing of revenue recognition is a crucial part in revenue recognition. According to US GAAP, revenue should be recognized when it is realized/realizable and earned (FASB, 1984, Para. 83).

1) In late 2000, Lucent announced that revenues would be adjusted downwards by $679m as a

When the outcome of a transaction involving the rendering of services can be reliably estimated, revenue from the sale of services is based on the level of completion of the transaction at the balance sheet date. The outcome of a transaction can be measured reliably when:

Financial statement fraud is any intentional or grossly negligent violation of generally accounting principles (GAAP) that is undisclosed and materially effects any financial statement. Fraud can take many forms, including hiding both bad and god news. Research shows that financial statement fraud us relatively more likely to occur in companies with assets of less than $100 million, with earnings problems, and with loose governance structures (Hopwood, Leiner, & Young, 2011).

To increase sales a company may relax their credit polices “review the relationship between sales and receivables to determine if receivables are increasing more rapidly than sales” (Schroeder, Clark, &Cathey, 2009, p. 158).