Revenue Recognition Case Study

management through the historical results, financial condition and the going forward management statement and disclosure, which should provide useful information (p.293).

I completely agree of the author’s point of view regarding the challenges that a defense counsel could face to protect its clients based on the ambiguities and complexities of the revenue recognition standards. The abundance of accounting principles, standards, laws, policies and regulations from different standard-setting bodies, governance and compliance agencies just caused the revenue recognition standard even more confusing and complicated to figure out which is acceptable and not acceptable and where to find resolutions. I think there is an issue of relevance under the

Weirich and Rouse mentioned the SEC (1998) reported 62% of the accounting fraud cases were issues around revenue recognition and indicated this to be a big problem (p.57). This is consistent to COSO (2010) reported 60% of fraud cases involves revenue recognition (p.5). Weirich and Rouse quoted Walter Schuetze, chief accountant in the Enforcement Division and former chief accountant of the Commission, when he said “recipe of choice for cooking the books” referring to the revenue recognition. Weirich and Rouse indicated that certain accounting professionals have described SAB101 as not really interpreting GAAP, instead transforming the accounting standards because the four (4) required criteria can be interpreted differently (p.58). Weirich and Rouse exhibited fraud cases related to improper revenue recognition, first, the fraud case of Donnkenny, Inc., where the SEC finds the company fraudulently holding the book open for the quarter, bulk orders without shipping to customers, fake sales, and holding inventory; secondly, the fraud case of Micro Component Technology, where the SEC finds the company at fault of prematurely recognizing revenue of product shipped with rights of returns and shipment without the customer

If looking closely at the GAAP requirements and SAB101 specific criteria of recognizing revenue already present a room for different interpretation, more likely the companies or industry will have its own interpretation. The accounting professional offered an arguably good description as SAB101 is believed to be changing the requirements and not really interpretative of the GAAP standards. The three (3) fraud cases presented in this study is the results of company executives pushing the limit on interpretation gap related to revenue recognition, managing earnings for the purpose of evading material fact, along with dishonest intention will increased the likelihood that fraud is the