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“New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis

The article “New Revenue Recognition Guidance and the Potential for Fraud and Abuse: Are Companies and Auditors Ready?” by Douglas R. Carmichael (2019) raises an essential topic of whether the guidance and a standard introduced by the Financial Accounting Standards Board meet the objectives stated by the organization. The author’s theme is examining the established rules of revenue recognition, their influence on fraud occurrence, and assessing avenues for violation of guidance. The author’s central message is that although the introduction of the revenue recognition guidance can potentially reduce revenue fraud issues, specific types of revenue recognition abuse cannot be addressed by the enhancement of the accounting guidance (Carmichael, 2019). Thus, auditors must put focus on the contracting process, greater scrutiny of contracts with customers, and carefully evaluate the susceptibility to fraud in executives’ compliance.

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One of the reasons why this topic is essential in accounting is the statistics that state that 61% of fraudulent revenue reporting cases investigated by the US Securities and Exchange Commission were based on improper revenue recognition systems, meaning that the prevalence of such fraud adversely impacts the accounting system in organizations (McKenna, 2020). The second reason why the topic is crucial is the potential risks associated with the revenue recognition abuse that historically have led to the destruction of companies or severe financial and reputational losses, which happened with Enron, Health South, WorldCom, Dell, and other corporations (McKenna, 2020).

First, I agree with the author’s conclusion that compliance with the new revenue recognition guidance can decrease the occurrence of specific types of fraud and abuse because new guidance made it more challenging to hide fraudster’s tracks when they want to justify some financial flows (Campanelli & Florio, 2018). Second, I can’t entirely agree with the author’s suggestion to utilize brainstorming sessions to identify the susceptibility to fraud and abuse in the new revenue recognition system because it might help the executives that want to manipulate the data to find ways to conduct a fraud and influence accounting professionals in the organization. Finally, I agree that the confirmation of transactions is directly relevant to revenue recognition, such as contract terms, because it would help identify responsible stakeholders and tight them to the revenue recognition points to track their compliance.

References

Campanelli, A. & Florio, N. (2018). Clamping down on potential revenue recognition fraud. The Wall Street Journal.

Carmichael, D. (2019). New revenue recognition guidance and the potential for fraud and abuse: Are companies and auditors ready? The CPA Journal.

McKenna, F. (2020). Finding fraud: The schemers may change but the schemes are old school. The Digging Company LLC.

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StudyCorgi. (2022, February 25). “New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis. Retrieved from https://studycorgi.com/new-revenue-recognition-guidance-and-the-potential-for-fraud-and-abuse-article-analysis/

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StudyCorgi. (2022, February 25). “New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis. https://studycorgi.com/new-revenue-recognition-guidance-and-the-potential-for-fraud-and-abuse-article-analysis/

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StudyCorgi. "“New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis." February 25, 2022. https://studycorgi.com/new-revenue-recognition-guidance-and-the-potential-for-fraud-and-abuse-article-analysis/.

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StudyCorgi. 2022. "“New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis." February 25, 2022. https://studycorgi.com/new-revenue-recognition-guidance-and-the-potential-for-fraud-and-abuse-article-analysis/.

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StudyCorgi. (2022) '“New Revenue Recognition Guidance and the Potential for Fraud and Abuse”: Article Analysis'. 25 February.

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