Receivable Savvy hosted a webinar in February featuring Chris Doxey, CAPP, CCSA, CICA, CPC. The purpose of the webinar was to help participants gain understanding on how to detect and prevent Accounts Receivable fraud in their organizations. Following is the last entry in a series of excerpts from that webinar.
The role Sarbanes-Oxley plays in helping to prevent fraud
From a Sarbanes-Oxley Section 404 perspective, on an annual basis, the CEO and CFO would have to attest to the validity of their internal controls program for every financial process in the company. Some of these cases we covered in this webinar are a little bit before Sarbanes-Oxley, but are examples of fraud like this still occurring? Not as frequently now. It would be caught. Again, the CEO and CFO would attest to the validity of the operational effectiveness of their internal controls. They would confirm the internal controls process for Accounts Receivable, Accounts Payable, financial close, payroll and many other functions, are sound.
Practices like these would help determine if the company was in trouble. If something were found, hopefully it would be found internally before an external audit. Finding things like this could qualify as a significant internal control and material weakness that would necessitate a financial restatement. So the company would have to redo their financials.
It’s a different world today, and behavior like [the example shared in the webinar] actually helped to put in place the Sarbanes-Oxley Act in July 2002.
Why revenue recognition control is so important
Revenue recognition is important because you’re really booking revenue and accounts receivable within the proper financial period. So, what that means is that you are properly stating revenue. If you’re not, then you are going to have to go back and do a financial restatement – which we touched on a little bit with the question on Sarbanes-Oxley.
If you’re not stating revenue properly, you’re really opening your accounting practices up for review and serious scrutiny. So revenue recognition is, I think, one of the most important accounting processes because you’re really making sure that all your financial processes are sound. That’s why I look at accounts receivable really being one of the key financial transaction processes that a company can have, really being one of the kingpins of finance and internal controls. Adhering to revenue recognition and proper controls really sets the tone for the company, financially. That’s why we look at the guidance that the SEC, GAAP, FASB, and all the other accounting practices provide.
You can listen to the entire webinar here.
Webinar Recap, Part 2 of 3: How to Detect and Prevent Accounts Receivable Fraud in Your Organization