acc_542_week_1_individual_assignme...

Jun 18th, 2015
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acc_542_week_1_individual_assignme...

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Week 5Explain some risks inherent in the acquisition and expenditure cycle. How may these risks be mitigated?Although statistics up to last year indicated that the leading cause of financial statement restatements was related to revenue recognition, most of us remember the frauds related expenditures cycle. CEOs and CFOs were ready to meet the analyst goals and in case overstatement by channel stuffing or other revenue recognition related tactics did not work out, they elected understatement of expenses and liabilities. Worldcom's classical capitalization of expenses to defer their recognition in the income statement while other companies just not recorded all the expenses the same period they incurred them for revenue generation electing a "milder" form to disregard the matching principle. We also heard a lot about expenses of various private parties, corporate jet for private shopping trips or not expensing stock options? Finally, using various related party transactions or investment vehicles in substance controlled by the company, but in form not (yes, variable interest companies?SPV/SPC) to move liabilities off-balance sheet were also very "popular" until FIN46 kicked in?Th

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