According to the Committee of Sponsoring Organizations on the Treadway Commission (COSO), this type of fraud is one of the most commonly seen financial statement frauds and is also the quickest way to overstate earnings (Newquist, S.C. & Russell, M.B., 2004). By not closing the books properly and backdating sales, Computer Associates International was creating timing differences that almost certainly affected the total net income of the company. While not provided with the net income total, it can be assumed that a two billion dollar misstatement is material for the company in question and, when multiplied over several years, the amount will only increase (SEC, SAB 99, 1999). Combined together with improperly recognizing sales revenue and manipulating income by recording sales in the incorrect period, the SEC has recognized these fraud types as “an issue that surfaces in a significant number of enforcement cases and the largest single issue involved in restatements of financial statements” (Miller, C. & Savage, A., p. 94, …show more content…
The generally accepted accounting principles (GAAP) state that revenues must be acknowledged when they are actual or able to be actualized and when they are earned, which means the service has now changed hands from the seller to the buyer. Within the Financial Accounting Standard Board’s Codification, there are over two hundred pronouncements dealing with how to handle revenue recognition issues (FASB, 2009). Fraud schemes are not occurring due to a lack of information or guidance on the subject. It is by their nature that a fraudster attempts to deceive and disguise the true nature of their crime. Unfortunately, creating additional policies would not help solve this type of situation, since the person perpetrating the offence does not follow policies and procedures to begin with and is intent on following through with their plan. As an accountant, prevention and detection are the best recourse in lessening the occurrence of timing scheme and revenue recognition frauds. A checklist, based on SAS Number 82, suggests considering several items including if “sales have increased dramatically in a recent period, if sales numbers are tied to the earnings of key executives, conducting cut off tests to see if the books are held open past the end of the period or if sales have been reversed, or if unusually large sales occur near the end of the period” (Wells,