Explain ethical challenges an accountant could face in recognizing revenue for a firm. How could these challenges be addressed?© BrainMass Inc. brainmass.com June 4, 2020, 2:35 am ad1c9bdddf
Unfortunately there are many ethical issues surrounding revenue and that is why there are more fraud causes involving revenue recognition than any other fraud activity! Here are five potential ethical issues.
1. Stuffing the channel.
There is a temptation if sales are under target to call you favorite customer and ask them to place an order for their next week's demand at year end. Your ship prior to year end and record the sale. Technically correct. This shifts demand from one year to the earlier year. Of course, unless demand picks up, this creates another situation at the next year end because there is only 51 weeks of demand reflected (since the first week of the year was accelerated into the prior year). Now what? You have to accelerate one or two weeks into the year Again you call the favorite large customers who are happy to help in order to get a nice 5% discount (incentive). This can grow each year and it takes more and more to get the current year looking good. This is a tough ethical issue since encouraging sales and shipping them prior to year end is not against GAAP. But it can dance at the edge of the line. What happens if the customer says, "Sure. You keep it ...
Your tutorial is 844 words and gives five examples of how revenue recognition is fuzzy enough to create ethical challenges.