Revenue Recognition Analysis: Assessinh the outcomes from corporate freud cases

Student: Alexander Harwood*
Mentor: Karen Cascini
Major: Accounting

Revenue recognition is currently at the root of 41% of fraud schemes committed in the United States. Revenue is the key to contributor to a business’s net income. The government body that determines the methodology to record revenue is the Financial Accounting Standards Board. This governing body, also know as the FASB, is continuously updating pronouncements in order to clarify, and enhance the current standard to match the changing times. Corporate fraud scandals have been saturating the news, and thus investors are losing faith in the validity of financial statements. This research aims to analyze the fraudulent activity within three mainstream companies: American International Group, Inc., Valeant Pharmaceutical, and Goldman Sachs. All three companies utilized financial instruments, and “creative accounting” in order to conduct their own form of financial management. The results of such intentions are inflated earnings and diminished liabilities. These manipulated revenues will severely alter financial statements directly leading to false investor support. Accordingly, the impact that these schemes have on investors will be addressed. Finally, the summation of this research will demonstrate that as the Department of Justice and Securities and Exchange Commission cracks down on these cases, companies are adapting their methods to reflect the new changes as they continue to defraud these organizations. This is an area of accounting that seems to be rife with fraud, and these cases will support that argument.

*Honors Senior