[Accounting]
Normally, the income should not be registered unless it is received. When recoding the revenue, we should incorporate several factors, such as: products are delivered and accepted, services are performed, entitled to payment is reasonably expected to be collected. Firms usually indicate their revenue recognition policy in the notes to the financial statements. Deviations from the “standard” revenue recognition principle are not unusual. There is a need to pay attention to brokerage warnings in the firm’s stock.
Revenues should be recorded in several cases: services are still staying to be given; shipment of goods has not occurred; the clients did not accept communities; delivery of goods which were not ordered took place; selling goods to a related party, etc.
Reporting fake revenue occurs when sales are lack of economic substance, when loans are recorded as income; the investment is registered as revenue; registering rebates that apply to future purchases in the financial statement and in other cases.
Re-timing of expenses takes places in case of capitalizing operating expenses; changing accounting policies; slow amortization; failure to record impairments. Failure to record liabilities or expenses for future obligations, altering accounting assumptions; releasing questionable reserves to income; constructing sham “rebates” or recording cash receipts as income goes into the category of off-the-books liabilities.
A company may shift current income to later periods in two options: releasing questionable reserves to earnings or improperly holding back revenue before a merger. Shifting prospective expenditures to the current period as a special charge occurs in case of accelerating discretionary expenses or improperly inflating a “Special Charge”.
