The latest news about Valeant Pharmaceuticals International Inc., suggesting the need for restatements of recent periods’ financial statements, albeit with limited details reported thus far, again focuses attention on the common matter of the possible abuse of revenue recognition accounting principles.

It has become commonplace to decry the dearth of talented individuals willing to serve on corporate board audit committees and to speculate on the need to make such appointments more attractive to the right mix of financially literate individuals.

There has been a great deal of public debate regarding the U.S. corporate tax rate and the impact it has on tax compliance, so-called tax inversions, and economic policy, and inevitably some of this has had strong political coloration.

Once more a massive accounting fraud is galvanizing critics of corporate governance, both here and abroad, this time engagingly illuminated by the elaborately choreographed resignation of three top Toshiba Corporation executives following disclosure of a $1.2 billion profit overstatement reportedly occurring over a seven year period.

In a recent Wall Street Journal article (“The 109,894-Word Annual Report,” June 2, 2015), the fact that corporate annual reports on Form 10-K have expanded by some 40% over just the four-year interval 2010-2013, to an average count of 42,000 words, was bemoaned, with General Electric’s headlined filing cited as perhaps a record-setting example. T

Revenue frauds have long been among the most popular forms of financial reporting manipulations. The SEC, for example, has traditionally identified revenue recognition infractions as being either the top or the second most common variety of the management and accounting frauds it has had to pursue.

Courts are increasingly treating accountants as fiduciaries, creating significant risk that they -- and their insurers -- may not realize they face.

Accounting expert Barry Jay Epstein co-authored an article titled, “Tax Heavens: Methods and Tactics for Corporate Profit Shifting,” with lead authors Mark Holtzblatt and Eva K. Jermakowicz, published in the January-February 2015 issue of the International Tax Journal.

Many studies conducted over the years have found that the most common vehicle for financial reporting fraud has been improper revenue recognition – although in a minority of periods this has been exceeded by manipulation of so-called “cookie jar” reserves, which are bogus estimated obligations that can be opportunistically reversed to compensate for earnings shortfalls.

Auditing is the process of obtaining and evaluating evidence that supports (or refutes) the material financial statement assertions made by management of the entity under examination.

Of the two major sub-categories of revenue recognition financial reporting fraud – premature recognition of real revenue, and recordation of wholly bogus revenue – the latter should, by all rights, be the easiest to detect, since extraordinary accounting measures have to be taken to perpetuate concealment of what are, after all, nonexistent claims to customer cash.

Fraud, and in particular financial reporting fraud, costs investors huge sums each year.  The headline cases – Enron, WorldCom, Adelphia, Parmalat – are widely reported and become MBA class case studies, but fraud is far more pervasive than these isolated major events suggest. 

The allocation of responsibilities between company management and outside auditors has long been clear.