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CAQ publishes report on enhancing financial reporting to fight fraud

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Mar 16, 2017

On March 16, 2017, the Center for Audit Quality (CAQ) of the American Institute of Certified Public Accountants (AICPA) released a report on addressing challenges for highly subjective and complex accounting areas as key for stemming fraud and reducing the number of restatements.

The report is based on two workshops held last year and contains several general recommendations, as well as recommendations focused on revenue recognition accounting policies.

General accounting policies and procedures:

  • Accounting policies must adhere to technical accounting guidance. It is critical that these policies be understandable to non-accountants who may not be conversant in the nuances of technical accounting.
  • Accounting policies must be reviewed at regular intervals and companies should have a process to identify and monitor changes in activities that have a potential impact on accounting.
  • Policies must be tested in the field prior to implementation, and then monitored for compliance post-implementation.

Revenue recognition accounting policies and procedures:

  • The revenue recognition policy should be granular, because even slight differences in interpretation can have a major impact on revenue recognition.
  • Where possible, contract terms should be standardized and reflect how transactions at a contract level relate to the requirements of accounting standards.
  • Deviations from typical contract terms that have implications for revenue recognition should be well documented.
  • Clear responsibility and communication lines among legal, business, and finance should be created so that all key players understand and approve of transactions.

The report also includes some recommendations about internal control over financial reporting.

Review the report on the CAQ's website.

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