Magazine article The CPA Journal

Old Wine in a New Bottle: Is It Enough?

Magazine article The CPA Journal

Old Wine in a New Bottle: Is It Enough?

Article excerpt

In January, the AICPA issued a document, "Audit Issues in Revenue Recognition," in response to the September 28, 1998, speech by SEC Chair Arthur Levitt where he singled out five undesirable practices often used to achieve "earnings management." Among the practices cited was premature recognition of revenue. (See the December 1998 CPA Journal for a copy of Levitt's speech.) In a December 1998 speech on the same subject matter, Walter Schuetze, chief accountant of the SEC's Division of Enforcement, cited premature revenue recognition as the "recipe of choice for cooking a company's books."

The document is available on the AICPA website. The guidance was prepared by the staff of the AICPA, has no official or authoritative status, and draws heavily on two other AICPA publications, Practice Alert No. 98-3, Revenue Recognition Issues, and Audit Risk Alert 1998/99. The intent of the publication is to "help auditors fulfill their professional responsibilities with regard to auditing assertions about revenue." In addition to an introduction, the guidance contains the following sections:

Responsibility for reliable reporting

Summary of selected accounting literature on revenue recognition

Indicators of improper revenue recognition

Auditing revenue assertions


The section on responsibility for reliable reporting relies heavily on the recommendations of the Treadway Commission and the resultant COSO Report. The accounting literature section covers virtually all FASB, AICPA, and SEC pronouncements relating to revenue recognition, including financial statement disclosures.

In effect, there are two sections relating to auditing. The first provides auditors with indicators of possible improper revenue recognition. Audit literature on fraud and related party transactions as well as the COSO Report are cited. …

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