List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type
What will be an ideal response?
The three main types of revenue manipulation are:
• Fictitious revenues — preparation of fictitious documentary evidence for sales and reduction of inventory.
• Premature revenue recognition — bill and hold; side agreements; unlimited right of return.
• Manipulation of adjustments to revenues — adjustments to the sales and returns allowance account, i.e., not recording returns; also, understating the estimate for bad debts which reduces the bad debt expense and understates the allowance for doubtful accounts.
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