Abstract:
This Journal of Accountancy article explores how revenue recognition — particularly under ASC 606 — can present risks of fraud and misstatement if not properly assessed by auditors. It discusses how auditors should identify and evaluate fraud risks in revenue, consider entity-specific revenue streams, and document their understanding of the client’s revenue processes. While focusing on auditing risk, it provides detailed examples of what can go wrong and what controls or judgment considerations auditors should examine.
Why it Matters:
Revenue recognition is one of the most common areas where financial misstatement and fraud occur, often due to judgment calls or inadequate controls. This article matters because it goes beyond mechanics to address risk and audit strategy, which is crucial for auditors, controllers, and finance leaders alike. Understanding where fraud risks are most likely helps companies strengthen their internal controls, improve audit preparedness, and reduce the likelihood of restatements or regulatory issues.
