Improper Revenue Recognition
e-Activity: Use the Internet to research a recent accounting scandal within the past five years related to irregularities in financial statement reporting.
- From the e-Activity, discuss the major accounting issues, the key motivation behind management’s decision to misrepresent the results of their financial condition, the main impact to investors, and the method by which the scandal was uncovered. Based on the type of revenue manipulation perpetrated, suggest key analytical procedures that the auditor should develop to detect the accounting abuses in the audits or those of other companies. Provide rationale for your suggestions.
- Discuss the primary risk factors and motives that would have the most impact on the decision of a company’s management team to commit the impropriety. Based upon the risk factors identified, make a recommendation or the types of internal controls that should be implemented to prevent or detect the impropriety. Be specific with your recommendations.
Please make sure that the bullet point and solution is together, and make solution at least a paragraph long.
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Late last year, an accounting scandal was discovered at Tesco after new chief executive Dave Lewis found a black hole in the company’s profits. It was related to the booking of income from commercial deals before they were realized, thus there was improper revenue recognition. The key motivation behind the management decision was obviously to appear more profitable in the eyes of the investors. This was aimed at increasing investor confidence. According to the …. “The shortfall relates to the timing of payments from Tesco’s suppliers in the UK, which…
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