As of August 2018, the FCPA Tracker reported approximately 156 open or recently closed investigations into corruption, five of which involve revenue recognition practices and material weaknesses. Of those five, three resulted in restatements of previously issued accounts. While not as common as the days of Enron and Worldcom, financial fraud and subsequent restatements are still out there and continue to pose a threat to investors and companies alike.
As investors rely to revenue growth as key performance indicators, incorrect revenue recognition has the potential to enhance the profitability and assets of a corporation. Historically, financial reporting fraud has been the most costly to investors, especially as stock prices drop upon disclosure. As a result, as long as revenue recognition remains a mainstay in financial reporting fraud, so will regulators’ focus into potential instances of premature recognition of revenue.