Warning Signs.docVIP

Warning Signs: Recording Revenue Too Soon (EM Shenanigan No.1) ●Recording revenue before completing any obligations under contract ●Recording revenue far in excess of work completed on a contract ●Up-front revenue recognition on long-term contracts ●Use of aggressive assumptions on long-term leases or percentage-of –completion accounting ●Recording revenue before the buyer’s final acceptance of the product ●Recording revenue when the buyer’s payment remains uncertain or unnecessary ●Cash flow from operations lagging behind net income ●Receivables (especially long-term and unbilled) growing faster than sales ●accelerating sales by changing the revenue recognition policy ●Using an appropriate accounting method for an unintended purpose ●Inappropriate use of mark-to-market or bill-and –hold accounting ●Changes in revenue recognition assumptions or liberalizing customer collection terms ●seller offering extremely generous extended payment terms Warning Signs: Recording Bogus Revenue (EM Shenanigan No.2) ●Recording revenue from transactions that lack economic substance ●Recording revenue form transactions that lack a reasonable arm’s-length process ●Lack of risk transfer from seller to buyer ●Transactions involving sales to a related party, affiliated party, or joint venture partner ●Boomerang (two-way) transactions to nontraditional buyers ●Recording revenue on receipts from non-revenue-producing transactions ●Recording cash received from a lender, business partner, or vendor as revenue ●Use of an inappropriate or unusual revenue recognition approach ●Inappropriately using the gross rather than the net method of revenue recognition ●Receivables (especially long-term and unbilled) growing much faster than sales ●Revenue growing much faster than accounts receivable ●Unusual increases or decreases in liability reserve accounts Warning Signs: Boosting Income Using One-Time or Unsustainable Activities (EM Shenanigan No.3) ●Boosting income using one-time events ●Turning