Question

Book publishing company is a company that publishes and promotes science fictions books. Financial analyst has been saying that this company has a great year ahead since some of its books become U.S. top seller in the bookstores. Recently, the company issued 2016 audit report and it has been recording purchase order from clients as revenues before the invoices are issued.
Based on above scenario:
1. Identify the error made in the financial report and explain what are the duties and responsibilities of an accountant?
2. What necessary actions auditor will suggests to rectify it?

Answer 1

Answer 1.

In the above case, the error that has been committed is of Revenue Recognition Concept.

As per the aRevenue Recognition Concept:

Revenue in the books must be recorded when the following are satisfied in case of sale:

• Sale has taken place.
• Ownership of title of goods has been transferred.
• There is no uncertainty in receiving the payment.
• The risk & reward has also been transferred to the buyer.

Hence, in the above case Revenue should be recognized when the invoice is made or payment is received.

Accountant Duties & Responsibilities:

• Provides financial information to management by researching and analyzing accounting data; preparing reports.
• Prepares asset, liability, and capital account entries by compiling and analyzing account information.
• Documents financial transactions by entering account information.
• Recommends financial actions by analyzing accounting options.
• Summarizes current financial status by collecting information; preparing balance sheet, profit and loss statement, and other reports.
• Substantiates financial transactions by auditing documents.
• Maintains accounting controls by preparing and recommending policies and procedures.
• Guides accounting clerical staff by coordinating activities and answering questions.
• Reconciles financial discrepancies by collecting and analyzing account information.
• Secures financial information by completing database backups.
• Maintains financial security by following internal controls.
• Prepares payments by verifying documentation, and requesting disbursements.
• Answers accounting procedure questions by researching and interpreting accounting policy and regulations.
• Complies with federal, state, and local financial legal requirements by studying existing and new legislation, enforcing adherence to requirements, and advising management on needed actions.
• Prepares special financial reports by collecting, analyzing, and summarizing account information and trends.
• Maintains customer confidence and protects operations by keeping financial information confidential.

Answer 2.

In the above case, the Auditor should reclassify the Revenue and put it in the period when the invoices are issued. Also, mark the Revenue as Unearned Revenue for the period invoice or payment is not received and give a proper disclaimer in the Balance Sheet.