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Beware of complex accounting areas which can lead to fraud, CAQ report says

The Center for Audit Quality (CAQ) published a report to address the challenges of complex accounting with the aim of halting fraud and reducing the number of restatements.

The goal was to promote the deterrence and detection of financial reporting fraud through the development of thought leadership, awareness programs, educational opportunities, and other related resources in the financial reporting supply chain. Financial reporting fraud is defined in the report as “a material misrepresentation in a financial statement resulting from an intentional failure to report financial information in accordance with generally accepted accounting principles”.

The report outlined that accounting policies must adhere to the technical guidance and be understandable for non-accountants also. Accounting policies should also be regularly reviewed, with any changes being identified and monitored for compliance, as well as being tested prior to implementation. The report also included some recommendations about internal control over financial reporting.

According to the report, the revenue recognition policy should be clear and detailed because different interpretations of it can have a major impact. Also, contract terms should be standardised, reflecting how transactions at a contract level relate to accounting standards requirements.  

The report was published by the CAQ on behalf of the Anti-Fraud Collaboration, to address challenges and compile recommendations of company executives, corporate directors and auditors. The report explained the CAQ’s recommendations for accounting policies, based on two workshops that were held last year.

Addressing Challenges for Highly Subjective and Complex Accounting Areas is available here.

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