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Chapter 6. Growing Mushrooms: The Art of... > Red Flag 11: When a Company Says it ...

Red Flag 11: When a Company Says it Has Changed Its Revenue Recognition Policies

A lot of the accounting frauds in recent years have been due to companies deciding to book revenue when a sale hasn’t been completed or booking the revenue but delaying or fudging the way it accounted for the related costs under, say, a five-year service agreement. Therefore, any mention of a change in accounting for revenue should be closely monitored. It may be that the previous policy was dodgy and the company is being pressured by the SEC to change to a more conservative approach, or the change may be an attempt to goose up revenues.


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