Fraudulent Revenue Recognition Prior to an Acquisition: An Instructional Case

• In Event: Reception with ELS Posters

Abstract

This instructional case places the student in the role of newly hired chief financial officer (CFO) of a firm that offers educational training seminars to physicians and health care professionals. The firm has been approached by several investors and venture capitalists interested in acquiring it, and the CFO is reviewing the financial statements in anticipation of a financial statement audit. In reviewing the current period financial statements, the CFO is struck by a number of issues associated with the firm’s revenue recognition policies. Among them, in calculating percentage-of-completion on contracts for seminars not yet delivered, it appears that current period revenue (and thus net income) has been intentionally overstated by a material amount. The case offers instructors the opportunity to examine significant ethical and professionalism issues associated with revenue recognition. Case questions are organized around the principles of the Giving Voice to Values framework.

Author

• John M Coulter, Western New England University