Question

Please go to the library link and locate an article by Douglas R. Carmichael titled "Hocus-Pocus Accounting." Please read the article and then identify and discuss the issues related to revenue recognition. In your responses, give thought to what you have read in your e-book, lesson, and Becker material. Also, what types of tests would the auditor design to uncover some of these issues?

Answer 1

HOCUS POCUS ACCOUNTING

Issues related to revenue recognition:

Issues arises when earnings/revenue are reported by manipulating the recognition of revenue. Most similar methods of doing this are the bill-and-hold transaction and a long list of sham transactions involving billing, shipping and/or related-party involvements. SEC and the AICPA both seek to increase independent auditors' awareness of problems associated with these practices.

KEY POINTS OF THIS ACCOUNTING

• Public companies fail to report quarterly earnings, which exceed analysts’ expectations.
• Bill-and-hold sales transactions is the most common drawback.
• In this type of working, an auditor is required to have good deep knowledge about its client to deal with any sort of problem.

An auditor can uncover these issues by having proper remedies of it such as

1. He can use analytical procedures to help and detect undisclosed bill-and-hold practices.
2. On Comparing current-year monthly sales with those of the last year might uncover significant fluctuations.
3. Further, it is also important - Coordination with audit work in other areas.