Financial Statement Fraud: Revenue and Receivables

This chapter discusses the fraud revenue and receivable schemes that are generally accomplished by increasing both revenue and receivable accounts. The SAS 99, “Consideration of Fraud in a Financial Statement Audit,” includes a presumption that improper revenue recognition is a fraud risk. Falsified sales invoices are normally created to support the fictitious sale and receivable, often by creating phantom customers or hiding fake transactions in the records of large legitimate customers with voluminous activity. Financial reporting fraud involves revenue and receivable accounts more often. Theft of cash, often during the collection process from customers, is the most common form of asset misappropriation. Based on the above mentioned factors, SAS 99 recognizes that material misstatements due to fraudulent financial reporting often result from an overstatement of revenues or an understatement of revenues. The auditor should ordinarily presume that there is a risk of material misstatement due to fraud relating to revenue recognition.