Hocus Pocus

In: Business and Management

Submitted By 8309
Words 2337
Pages 10
"Hocus-Pocus Accounting" by Douglas R. Carmichael, Journal of Accountancy, October 1999; Vol. 188, Iss. 4; pg. 59, 5 pgs
Abstract:
SEC Chairman Arthur Levitt decried what he termed "accounting hocus-pocus" and called for coordinated efforts to uncover it. He targeted the practice by some companies of improperly boosting reported earnings by manipulating the recognition of revenue. Among the most common methods of doing this are the bill-and-hold transaction and a long list of sham transaction involving shipping, billing and/or related-party involvements. Both the SEC and the AICPA seek to increase independent auditors' awareness of problems associated with these practices. Full Text: | Copyright American Institute of Certified Public Accountants Oct 1999 |
[Headnote]
Where there's revenue-recognition deviation, there could be fraud.
SEC Chairman Arthur Levitt decried what he termed "accounting hocus-pocus" and called for coordinated efforts to uncover it. He targeted the practice by some companies of improperly boosting reported earnings by manipulating the recognition of revenue. Among the most common methods of doing this are the bill-and-hold transaction and a long list of sham transactions involving shipping, billing and/or related-party involvements. Both the SEC and the AICPA seek to increase independent auditors' awareness of problems associated with these practices.
Public companies feel pressure to report quarterly earnings that meet or exceed analysts' expectations-after all, failure to meet those expectations can hurt companies' stock prices. This pressure can lead to practices that sometimes include fraudulent overstatement of quarterly revenue. Any of the improper and unusual revenue-transaction methods used to misstate quarterly revenue also can be used to change annual results. Auditors need to be alert to the whole gamut of warning signs…...

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