Improper revenue recognition Historically the accounting profession has come under fire for fraudulent financial reporting due to questionable improper revenue recognition. Identify at least six examples of questionable revenue recognition practices that an auditor must consider in performing an audit engagement

Answer 1

Questionable and improper revenue recognition practices would include:
? recording of sales in earlier periods, including channel stuffing.
? recording sales under "bill and hold" agreements, that is, recording a sale but not shipping the goods or shipping at a later date, pending customer approval.
? recording shipments to the company's own warehouse as sales to a customer.
? undisclosed side agreements with customers giving them an unconditional right to return the product.
? shipment of unfinished product or shipment before agreed to by customer(s).
? over-shipment of products
? recording consignment sales as final sales.
? recording sales with rights of return when the likelihood of return is high without a proper corresponding estimate for returns.
? recording the entire amount of transactions involving operating leases up-front as sales transactions.
? recording fictitious sales that never occurred.
? shipping used goods that were previously returned as new.
? applying revenue recognition principles improperly and aggressively.