Corporate Revenue Miscalculations & The Impact On Stakeholders

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Karen T. Cascini
Alan DelFavero
Ryan Bezner


Revenue Recognition, Bill-and-Hold Sales, Percentage-of-Completion Method, Earnings Restatements, Earnings Reserves, IFRS, U.S. GAAP, Convergence Project, Fraud, Shareholder Wealth


Corporate earnings restatements are regarded as one of the most significant issues in accounting today.  While there are various factors that can influence profitability, revenue is the key contributor to a business’ net income.  During the 2000s, a multitude of domestic and multinational corporations faced significant issues with their revenue recognition practices.  Although the investing public might regard any revenue restatement as laden with possible fraud, this is not always the case.  Multinational firms face dual accounting systems, such as U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Currently, similarities and differences between the accounting systems exist.  However, key differences between GAAP and IFRS may cease to exist in upcoming years due to the Financial Accounting Standards Board’s (FASB’s) and the International Accounting Standards Board’s (IASB’s) joint effort to converge the two systems.  Throughout this paper, examples of revenue “miscalculations” will be presented as well any penalties levied by the U.S. Securities & Exchange Commission against implicated corporations.  Accordingly, the impact that revenue blunders have on shareholder wealth will be examined.  Finally, the authors will present recommendations for mitigating revenue “errors” in the future.


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