Chpt 11, Fraud vs Error 11-4

Amount of revenue earned on franchises is miscalculated

error Aggressive attitude of management toward financial reporting; incompetent chief accounting officer

Recording sales when the customer's payment is contingent upon the customer receiving financing or selling the goods to another party (e.g., consignment sales)

error Aggressive attitude of management toward financial reporting; incompetent chief accounting officer

Intentional overshipment of goods

fraud Recording fictitious sales without receiving a customer order or shipping the goods

Recording cash that represents a liability (e.g., receipt of a customer's deposit) as revenue

error Inadequate accounting manual; incompetent accounting personnel

Recording sales based on the receipt of orders from customers rather than the shipment of goods

error Ineffective billing process in which billing is not tied to shipping information

Inaccurate billing and recording of sales

error Ineffective controls for testing invoices, or ineffective input validation checks and computer reconciliations to ensure the accuracy of databases

Recording sales in the wrong period based on incorrect shipping information

error Ineffective cutoff procedures in the shipping department

Overestimating the percentage of completion on projects by a construction company using the percentage-of-completion method of revenue recognition

fraud Aggressive attitude of management toward financial reporting; incompetent personnel involved in the estimation/ accounting process

Misstating the percentage of completion of several projects by a construction company using the percentage-of-completion method of revenue recognition

fraud Ineffective board of directors, audit committee, or internal audit function; "tone at the top" not conducive to ethical conduct; incompetent individuals involved in the estimation process

Recording franchise revenue when the franchises are sold even though an obligation to perform significant services still exists

fraud Ineffective board of directors, audit committee, or internal audit function; "tone at the top" not conducive to ethical conduct; undue pressure to meet sales targets

Recording sales when the customer is likely to return the goods

fraud Ineffective board of directors, audit committee, or internal audit function; "tone at the top" not conducive to ethical conduct; undue pressure to meet sales targets

Holding the sales journal open to record next year's sales as having occurred in the current year

fraud Ineffective board of directors, audit committee, or internal audit function; "tone at the top" not conducive to ethical conduct; undue pressure to meet sales targets

Recording fictitious sales without receiving a customer order or shipping the goods

fraud Ineffective board of directors, audit committee, or internal audit function; "tone at the top" not conducive to ethical conduct; undue pressure to meet sales targets