Commentary

Auditing is the process of obtaining and evaluating evidence that supports (or refutes) the material financial statement assertions made by management of the entity under examination.  Auditors must examine sufficient appropriate evidence to support their opinions (per U.S. Auditing Standards, AU-C Section 500, and PCAOB Auditing Standard No. 15), but have always been inclined to […]

Many studies conducted over the years have found that the most common vehicle for financial reporting fraud has been improper revenue recognition – although in a minority of periods this has been exceeded by manipulation of so-called “cookie jar” reserves, which are bogus estimated obligations that can be opportunistically reversed to compensate for earnings shortfalls.  […]

Of the two major sub-categories of revenue recognition financial reporting fraud – premature recognition of real revenue, and recordation of wholly bogus revenue – the latter should, by all rights, be the easiest to detect, since extraordinary accounting measures have to be taken to perpetuate concealment of what are, after all, nonexistent claims to customer […]

Fraud, and in particular financial reporting fraud, costs investors huge sums each year.  The headline cases – Enron, WorldCom, Adelphia, Parmalat – are widely reported and become MBA class case studies, but fraud is far more pervasive than these isolated major events suggest.  The Association of Certified Fraud Examiners (ACFE) publishes its biennial study, Report […]

The allocation of responsibilities between company management and outside auditors has long been clear.

Management is obligated to develop and implement an accounting system, including pertinent internal controls, to enable the proper and timely recognition, measurement, classification, and recordation of transactions and events bearing upon the entity’s financial position and results of operations, and the periodic […]