Financial Shenanigans, Fourth Edition: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 4th Edition

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Earnings Manipulation Shenanigan No. 2: Recording Bogus Revenue

The previous chapter discussed situations in which companies record revenue too soon. While this is clearly inappropriate, the acceleration of legitimate revenue is less audacious than simply making the revenue up out of thin air. This chapter describes four techniques that a company might employ to create bogus revenue and warning signs for investors to spot these nefarious shenanigans.

Techniques to Record Bogus Revenue

1. Recording revenue from transactions that lack economic substance

2. Recording revenue from transactions that lack a reasonable arm’s-length process

3. Recording revenue on receipts from non-revenue-producing transactions

4. Recording revenue from appropriate ...