Difference between revisions of "Accounting fraud"

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'''Increase in Accounting Fraud Whistleblower Tips'''
='''Increase in Accounting Fraud Whistleblower Tips'''=


In a [[2016 keynote speech]], the SEC Enforcement Director confirmed the SEC’s continued focus on issuer reporting and disclosure violations. To date, and as detailed in the [[SEC Division of Enforcement’s 2020 Annual Report]], this focus has remained consistent: “'''Integrity and accuracy in financial statements and issuer disclosures are critical to the functioning of our capital markets.''' During the last fiscal year, the Division maintained its ongoing focus on identifying and investigating securities laws violations involving different components of the financial reporting process.”
In a [https://www.sec.gov/news/speech/ceresney-enforcement-focus-on-auditors-and-auditing.html 2016 keynote speech], the SEC Enforcement Director confirmed the SEC’s continued focus on issuer reporting and disclosure violations. To date, and as detailed in the [https://www.sec.gov/files/enforcement-annual-report-2020.pdf SEC Division of Enforcement’s 2020 Annual Report], this focus has remained consistent: “'''Integrity and accuracy in financial statements and issuer disclosures are critical to the functioning of our capital markets.''' During the last fiscal year, the Division maintained its ongoing focus on identifying and investigating securities laws violations involving different components of the financial reporting process.”


Since the inception of the [[SEC Whistleblower Program]], whistleblowers have played a critical role in assisting the SEC to uncover and halt accounting schemes. According to the [[SEC Whistleblower Program’s 2020 Annual Report]], a majority of whistleblowers tips submitted to the SEC each year relate to violations in corporate disclosures and financials:
Since the inception of the SEC Whistleblower Program, whistleblowers have played a critical role in assisting the SEC to uncover and halt [https://www.accountingtoday.com/list/top-10-ways-companies-cook-the-books accounting schemes]. According to the [https://www.sec.gov/files/2020%20Annual%20Report_0.pdf SEC Whistleblower Program’s 2020 Annual Report], a majority of whistleblowers tips submitted to the SEC each year relate to violations in corporate disclosures and financials:


2011: 51 corporate disclosures and financials tips
2011: 51 corporate disclosures and financials tips
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In exchange for these tips, whistleblowers may be eligible to receive awards under the Dodd-Frank Act’s SEC Whistleblower Program. Importantly, '''even auditors and accountants may be eligible to receive awards under the program.'''
In exchange for these tips, whistleblowers may be eligible to receive awards under the Dodd-Frank Act’s SEC Whistleblower Program. Importantly, '''even auditors and accountants may be eligible to receive awards under the program.'''


'''<u>Accounting Fraud and Abuses & SEC Enforcement Actions</u>'''
='''Accounting Fraud and Abuses & SEC Enforcement Actions'''=


Former SEC Chair Mary Jo White emphasized that [c]omprehensive, accurate, and reliable financial reporting is the bedrock upon which our markets are based, and is essential to ensuring public confidence in them.” As such, the SEC has increased the number of enforcement actions for accounting fraud and other accounting violations, including:
Former SEC Chair Mary Jo White emphasized that [c]omprehensive, accurate, and reliable financial reporting is the bedrock upon which our markets are based, and is essential to ensuring public confidence in them.” As such, the SEC has increased the number of enforcement actions for accounting fraud and other accounting violations, including:


'''<u>Improper Revenue Recognition</u>'''
=='''<u>Improper Revenue Recognition</u>'''==


According to a [[Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002]], during the five years preceding the enactment of SOX, the “SEC brought the greatest number of actions [involving issuer financial-report violations] in the area of improper revenue recognition: 126 of the 227 enforcement matters involved such conduct, including the fraudulent reporting of fictitious sales, improper timing of revenue recognition, and improper valuation of revenue.” The following enforcement actions are examples of improper revenue recognition schemes that could qualify for an SEC award.
According to a [[Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002]], during the five years preceding the enactment of SOX, the “SEC brought the greatest number of actions [involving issuer financial-report violations] in the area of improper revenue recognition: 126 of the 227 enforcement matters involved such conduct, including the fraudulent reporting of fictitious sales, improper timing of revenue recognition, and improper valuation of revenue.” The following enforcement actions are examples of improper revenue recognition schemes that could qualify for an SEC award.
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Tangoe paid $1.5 million to settle charges that it reported revenue prematurely for work that had not been performed and for transactions that did not produce any revenue at all. According to the complaint, the violations included: “1) counting customers’ prepayments for future services as current revenue; 2) improperly recording a loan from a business partner as revenue; 3) recording revenue in the wrong reporting periods; 4) prematurely recording revenue from contingent fee arrangements; 5) recording revenue from customers who were unlikely to pay; 6) violating the accounting rules for bad debt reserves; and 7) prematurely counting revenue from long-term contracts with ongoing obligations.”
Tangoe paid $1.5 million to settle charges that it reported revenue prematurely for work that had not been performed and for transactions that did not produce any revenue at all. According to the complaint, the violations included: “1) counting customers’ prepayments for future services as current revenue; 2) improperly recording a loan from a business partner as revenue; 3) recording revenue in the wrong reporting periods; 4) prematurely recording revenue from contingent fee arrangements; 5) recording revenue from customers who were unlikely to pay; 6) violating the accounting rules for bad debt reserves; and 7) prematurely counting revenue from long-term contracts with ongoing obligations.”


[[Inadequate Internal Controls over Financial Reporting (ICFR)]]
=='''Inadequate Internal Controls over Financial Reporting (ICFR)'''==


*'''<u>SEC v. Monsanto</u>'''
*'''<u>SEC v. Monsanto</u>'''