Accounting period

About: Accounting period is a research topic. Over the lifetime, 157 publications have been published within this topic receiving 2245 citations.

Timing Is of the Essence

Abstract: Checking the calendar may be key in uncovering a fraud When companies get desperate to show earnings or reduce losses, sometimes they resort to fraudulent timing differences to show phony profits By recognizing these often simple schemes CPAs can usually detect material financial statement frauds early, before they become catastrophic There are five basic methods companies use to create bogus profits (See "The Fraud Beat," JofA, Oct00, page 93; and Mar01, page 91) One of them is fraud in timing differences, also called cut-off fraud It normally involves one of two basic techniques: recording revenues early and/or recording expenses and liabilities late The schemes for late recording of liabilities mirror those of early revenue recognition, so we will cover only the latter topic REVENUE RECOGNITION VS FRAUD According to GAAP, revenue is recognized when the earnings process is complete and the rights of ownership have passed from seller to buyer Examples of rights of ownership include: possession of an unrestricted right to use the property, title, assumption of liabilities, transferability of ownership, insurance coverage and risk of loss How revenue is actually defined is a highly complex issue, but fraud is not so complicated It involves purposeful attempts to deceive, not good-faith disagreements on accounting treatments The auditor will normally find that revenue recognition frauds can be subdivided into three categories: holding the books open past the end of the accounting period, recording revenue when services are still due and shipping merchandise before the sale is final Playing with time Probably the most common method to illegally recognize revenue early is to hold the books open past the end of the accounting period to accumulate more sales Proper accounting cut-off tests prevent most of these problems, but not all A Boca Raton, Florida, company programmed its time clocks to stop at exactly 11:45 am on the last day of each quarter Shipments time-stamped with that date would continue until quarterly sales targets were met Then the clocks would begin ticking again That technique, though, was a bit too obvious Alert auditors uncovered the scheme when they noticed a batch of time cards all stamped with the same date and time Recording revenue when services are still due Unless services have been rendered completely, GAAP prohibits booking the entire revenue amount But it is all too common for companies to (1) ignore percentage-of-completion contracts by taking the cash payments into income, (2) fail to record offsetting accruals for services paid for in advance, and (3) record refundable deposits as income Shipping merchandise before the sale is final Frequently, consignment merchandise is counted as being sold In more than a few cases, companies--around the time of an audit--have shipped merchandise to private warehouses for storage and counted those shipments as sales DETECTING PREMATURE REVENUE RECOGNITION Most of the techniques that CPAs can use to detect premature revenue recognition are textbook audit procedures The trick is to apply the proper degree of professional skepticism in interpreting the results A lack of diligence in employing reasonable and necessary techniques like the ones described below can easily lead to an audit failure If one employee processes the same transaction from beginning to end, premature revenue recognition is easier to accomplish Adequate internal control involves the following segregation of duties: order entry, shipping, billing, accounts receivable detail and general ledger Even adequate internal controls can be overridden by management, so be alert to indicators that controls are not being followed If sales or shipping invoices are out of numerical sequence, check to see if the documentation has been hidden In early premature revenue recognition schemes, goods are often billed before they are shipped, so quantities of goods shipped will not reconcile to goods billed …

System and method for change management and transaction versioning

Abstract: An accounting tool may be used to manage financial data for an organization. The accounting tool may support the closing of accounting periods for the finances of the organization. The accounting tool may be configured to receive a request to modify a transaction of a closed accounting period. The accounting tool may be configured to create a changed version of the transaction according to the modify request, and to maintain a previous version of the transaction that does not include the requested modification. A separate transaction may not be required, even though the modified transaction was initially recorded during a closed accounting period. In addition, the accounting tool may be configured to provide a plurality of views of the closed accounting period, e.g., a first view that comprises the previous version of the transaction, and another view that comprises the changed version.

Analysis and planning

Abstract: This chapter provides an overview of analysis and planning. All the financial data used so far has been historical. If a loss was incurred or poor financial ratios accumulated, then it would be too late to alter them. They occurred in the past. To be of any use at all, the analysis stage must be followed by the planning stage. The route should follow automatically. The plans for next accounting period should be formulated after the faults of previous years have been isolated and eliminated from the plans. Without adequate planning a business would stumble from one period to the next, existing on hope. Adequate planning means directing the business and dictating its course rather than letting the business dictate the direction. Profit or loss, liquidity or cash problems should not occur without warning. A sound financial structure does not occur by accident. The ratios can be used to guide company finance, sloppy financial controls can be tightened up, and a strong business plan projected into the future. The financial health and, therefore, company prosperity should be the concern of all employees. Without a strong financial base, any business will close down. A manager's role should never be isolated into one area; management is an integrated responsibility, with all the aspects of a business being integrated.

Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States

Abstract: This paper compares income inequality and income mobility in the Scandinavian countries and the United States during the 1980's. The results demonstrate that inequality is greater in the United States than in the Scandinavian countries and that the ranking of countries with respect to inequality remains unchanged when the accounting period of income is extended from one to 11 years. The pattern of mobility turns out to be remarkably similar despite major differences in labor market and social policies between the Scandinavian countries and the United States.

The Measurement of Income

Abstract: This chapter focuses on the measurement of income. There are legal and economic reasons why the income of entities must be measured annually for the information of shareholders, creditors, tax gatherers, and others, irrespective of whether the calendar year is a time division appropriate to the production and exchange circumstances of the entity, but the periodic measurement of income for the purposes of public reporting presents accountants with some of their most difficult problems. An obvious approach would be by way of comparison of the net worth of an entity at the beginning and ending of the accounting period. An alternative way of seeking to approximate asset values shown in published financial statements to present net worth is by periodic revaluation of assets to realizable or replacement cost. Procedures of this kind are, in fact, used by some organizations, but they, too, involve a considerable amount of subjective judgment on the part of the accountant, and the usual practice is to base accounting measurements of income on a comparison of the revenue arising in an accounting period with the costs incurred in that, or previous periods, associated with the earning of that revenue.