Revenue Recognition Changes

Improved Essays
Revenue Recognition Changes Caused Fraud
Revenue Recognition standards as we all know has been codified or updated several times in an effort to improve the usefulness and relevance of the reporting information. The trial and error concept of identifying what criteria works across business industry in recognizing revenue instigate several opportunities. The fact that there is not going to be a general standard on recognizing revenue that is commonly suitable to all business types turn out to be the downfall of the usefulness of the financial statements. From one loopholes of the FASB GAAP to another, as CPAs and company executives trying aggressively to follow the codification the way favorable to them. U.S. being transitioned to knowledge
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The gaps on the revenue recognition standards has been the major concern as it determines the company’s profitability and company’s value and should be the most reliable information available in the financial statements for stakeholders to make a wise investment and business decision. It is human nature for company executives to make their company looks good and appealing on paper and therefore will do anything in their power to make revenue recognition standard work to their advantage. As company executives push its limits without being questioned and as human becomes greedy and find themselves perpetrating fraud. However, that realization didn’t stop executives from committing fraud and keep on going for years until the SEC and regulators finally wake up. By that time, it was already too late and executives have gotten themselves very wealthy and well prepared for their big day. Maybe the penalty and charges for committing fraud are not big enough to alarm executives of their wrong doing and don’t mind being prison for a few years and pay penalty then enjoy their earthly and materialistic desire. One thing for sure, it is really tough to catch fraud with eyes closed. The auditing system mentality of certifying the financial statements are true and correct, and fail to initiate discovering indicators of …show more content…
Marshall (2004) also quoted the comment from the FASB project update, pointing out revenue as being the major biggest single item in the financial statement and the extremely significant matter, which the standard-setters, regulators and CPAs has to tackle as being the most difficult and challenging issues. Marshall (2004) described revenue recognition as being “a slippery issue in accounting, an area that has proven ripe for fraud, and that FASB has been wrestling for years” (p.24). The diverse type of companies in the U.S. and the distinct interpretations of accountants contributed the complexity and difficulty to reach a common standard that suits every type of business. Marshall (2004) also quoted April Klein, associate professor of accounting at New York University’s Stern School of Business statement around fraud being engineered on the revenue portion of the report and the flexibility on accrual accounting (p.24). Marshall (2004) named three (3) categories consisting the troubles of revenue recognition such as, intentional fraud perpetrated by senior management, manipulation of sales by sales department not known by executives and honest mistake, according to Robert O’Connor, CEO of software revenue monitoring firm Softrax Corporation (p.24). Marshall (2004) indicated that it was not an issue of standard-setters fail to do anything

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