The new accounting guidelines recognize that the contract structure has been used to incorrectly account for revenue and imposes specific requirements to combat such fraud or abuse. Like the essential requirements for the existence of contracts, the new guidelines should draw the attention of management and auditors to the controls and procedures for identifying contracts that need to be combined. These controls and procedures should aim to identify contracts that are essentially related to each other, but which are structured into separate legal contracts. For a fraud detection and prevention program to be an effective incentive and disciplinary measure, they need to be clearly defined in political language. In the event of a breach of compliance, disciplinary procedures should be immediate, consistent and consistent with the offence. A company may also consider a reward system based on ethics and compliance and not just on financial performance, and whether the staff who define and oversee the policy and its application should be paid based on the company`s performance. The experienced auditor can question these and other issues related to the revenue process with robust review procedures. Their first step is to understand how revenue is accounted for. Since most audited financial statements must comply with generally accepted accounting standards (GAAP), revenue review is a two-part process: theme 606 requires the use of appropriate progress in situations where revenues are accounted for over time.
The FASB guidelines on input and exit measures are not very different from previous guidelines, but the objective of presenting a company`s performance in the promised transfer of control over goods or services focuses on whether an effective transfer has taken place. “… contract terms are relevant to the large number of cases of incorrect revenue relating to counterfeit contracts or contracts that were not legally enforceable. The FASB decided that a company should measure revenue based on an approach to the transaction price awarded. This approach removes the previous criterion of a fixed or identifiable price and involves three steps: determining the transaction price for the contract, assigning to specified service obligations, and taking into account revenues corresponding to the amount allocated to performance commitments (ASU 2014-09, BC 181-183). A study by the Financial Services Commission`s (COSO) Committee of Sponsorship Organizations on 347 cases of financial fraud found that 61 percent of the fraudulent financial records reviewed by the SEC came from incorrect revenue detection systems. Frequent cases of revenue recognition systems are: see Navistar (Vendor Rebates): “In some cases, some Engine employees have also entered into letter agreements with lenders stating that the rebates were related to future purchases and/or that the seller could recoup the rebate through excessive prices in the future, with which the company would forego agreed price reductions. In addition, these letters indicated that Navistar would reimburse the rebate accordingly if the company did not make sufficient purchases in the future.
These letters showed that these rebates had not actually been won at the time of the recognition of the amounts. Management and the statutory auditor must carefully determine whether the usual business practices and the display of transactions lead, from a customer perspective, to uncertainties that lead to divergent considerations. The requirement to include variable counterparties draws more attention to uncertainties that may reduce the revenue from the transaction price indicated at the start of a contract.