13 Oct Undisclosed Side Agreements
In addition, these “ancillary agreements” could contravene the assurances given by the customer when signing the sales contract. For example, the Reynolds and Reynolds Massachusetts Standard Form Motor Vehicle Purchase Agreement (“P&S”) states that “Buyer represents and warrants that no loan other than the one mentioned above has been granted by the Dealer.” If your employees enter into “ancillary agreements” with the customer, your reseller extends the customer`s “credit” in violation of P&S. As soon as you make a “secondary statement” regarding the renewal of the credit, this “presentation” by the customer in P&S is no longer accurate. Analytical methods implemented during planning can be useful in identifying the risks of critical misrepresentation due to fraud. However, since these methods of analysis generally use high-level aggregated data, the results of these methods of analysis provide only a complete first indication of the possible misrepresentation of the financial statements. Accordingly, the results of the analysis procedures carried out during planning, as well as other information collected by the statutory auditor, should be taken into account in order to determine the risks of essential false information related to fraud. Contract manipulation has been a frequent element in turnover fraud. Some cases, such as those against ZZZZ Best and Satyam, involved fictitious contracts. Gemstar allegedly used expired, controversial and non-existent contracts; others, such as Computer Associates, MicroStrategy, and Autonomy, repaid contracts to record anticipated revenue. In other cases, such as.B. In the case of Peregrine Systems, significant contingencies, added in written or oral agreements, have given rise to non-binding agreements.
None of the accounting guidelines can prevent fraudulent contractual practices, but Theme 606 should again pay considerable attention to the finding of the existence of an existing contract. Accounting guidelines alone cannot eliminate the risk of counterfeit contracts, recurring contracts or undisclosed ancillary agreements, but the first step of the FASB model focuses on whether there is convincing evidence of the existence of a valid real contract. The FASB`s specific requirements for proof of the existence of a contract should lead management and statutory auditors to re-comply with controls and procedures to sufficiently ensure that revenue will only be recognised for contracts that actually exist. . . .