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hi everyone,
i just want some explanation for the following case study
X company, one of the largest office supply in US, restated its earnings for the first three quarters of 20X0 because of problems relates to its employees' fabrication of vendor payments. the retail world uses vendor payments extensively as a marketing tool. companies pay a fee and receive better shelf space or advertisements showing their products. X company estimated that income had been overstated by $4 to $6 million for the three quartets.
the nature of vendor payments makes the susceptible to fraud. when companies need to make quarterly revenue targets set by managements or wall street analysts,they ask a supplier to give them a vendor allowance at the time for something they will buy in they future, allowing the company to meet its target revenue for the quarter.The vendor allowances are recorded as revenue at the end of the quarter, thus allowing the company to meet revenue targets for the quarter.
with a client in an industry that uses vendor payments, an auditor might increase the amount of evidence gathered for the existence assertion of the revenue cycle indicating an increased level of risk associated with these payments.
Why would a company recognize a reduction in cost of goods sold as sales revenue ?
i just want some explanation for the following case study
X company, one of the largest office supply in US, restated its earnings for the first three quarters of 20X0 because of problems relates to its employees' fabrication of vendor payments. the retail world uses vendor payments extensively as a marketing tool. companies pay a fee and receive better shelf space or advertisements showing their products. X company estimated that income had been overstated by $4 to $6 million for the three quartets.
the nature of vendor payments makes the susceptible to fraud. when companies need to make quarterly revenue targets set by managements or wall street analysts,they ask a supplier to give them a vendor allowance at the time for something they will buy in they future, allowing the company to meet its target revenue for the quarter.The vendor allowances are recorded as revenue at the end of the quarter, thus allowing the company to meet revenue targets for the quarter.
with a client in an industry that uses vendor payments, an auditor might increase the amount of evidence gathered for the existence assertion of the revenue cycle indicating an increased level of risk associated with these payments.
Why would a company recognize a reduction in cost of goods sold as sales revenue ?
