Since the perpetrators of financial statement fraud may be outsiders who collaborate with certain account department employees, it is imperative for concerned organizations to carry out surprise financial audits regularly to detect and prevent any potential incidences of financial statement fraud. This paper focuses on revenue recognition fraud by examining the background, real-time incidence, detection, and statistics related to revenue recognition fraud. Background of revenue recognition fraud Commonly known as timing schemes or improper treatment of sales, this category of financial statement fraud is undeniably the most prevalent in many accounts departments of most corporations (Schrader & Toner, 2013). The revenue recognition fraud is normally a matter of the organization at large especially when the management has the intention of hiding some real figure from the public and financial scrutiny for a good section of the financial year. The motivating factors for the management’s engagement in revenue recognition fraud may be due to a weak season where the organization predicts unimpressive financial prospects. In addition, unscrupulous management systems could get involved in outright revenue recognition fraud in order to create the impression that the concerned organization is faring well in the financial market or simply to gain an undue competitive edge over business rivals and the government at large (Stallworth & Digregorio, 2004). According to Hutton Law Group (2011),
revenue recognition fraud can occur in various forms depending on time and the nature of the concealment of useful sale projections and turnover. One of the mistakes that can result in this kind of fraud is the premature posting of legitimate sales, which would contravene the Generally Accepted Accounting Principles GAAP red flag. GAAP simply refers to the violation of the accounting procedures through the early recording of sale. Similarly, the recording of sales even before making any sales can land a corporate in trouble as the as the financial accounting rules and regulations are clear about the impropriety of stuff channeling. Stuff channeling often leads to a tremendous increase in the number of subsequent periodic stock returns usually accompanied by unfamiliar soar in credits (Schrader & Toner, 2013). Detecting revenue recognition fraud and its dangers According to Stallworth and Digregorio (2004), there is a significant difference between the red flags of financial statement fraud from those of embezzlement of assets. One of the main ways of detecting revenue recognition fraud is by noting an uncommon rise in revenue and profits of a given company.