Wareham SC Systems
Wareham SC Systems, Inc.
Case Study
Wareham SC Systems current revenue recognition policy states that they recognize revenue when they have shipped their product to the customer. SC Systems also adjusts for warranty by estimating how much money will be spent on fulfilling those warranties. They subtract this estimation of warranties from the total revenues for shipped products. For other types of specific contracts, such as service contracts, they use the percentage-of-completion accounting method which will be paid off as the work is being done. The way they determine the percentage of work completed is by estimating how much the service generally costs. They get this estimation from recent service information that has been gathered.
Due to the way that this company currently recognizes revenue, there is a possible opening for the manipulation of revenues. For example, looking at Wareham’s current revenue recognition policy, they could overstate or understate the estimation of how much they will lose on product warranties on shipped products. Since this figure is an estimation, as long as it sounds reasonable, they can adjust the numbers a bit to make it more favorable for their company. When looking at their service contracts, there is another estimation that can be manipulated. Since the revenues of these contracts are recognized by the percentage-of-completion and they’re the ones determining the actual percentage completed, this leaves room open for manipulation. For example, let’s say that there is a contract that is estimated to cost $200,000.00. Depending on whether the company wants to say they’ve completed 20% or 25%, that is a difference of $10,000. What if the company has 40 different accounts like this that are overstated? This case also states that if there are any changes or adjustments that need to be made to the estimated costs or anticipated losses, they can recognize this is in the period they determine.
Based on the new industry SAB
Case Study
Wareham SC Systems current revenue recognition policy states that they recognize revenue when they have shipped their product to the customer. SC Systems also adjusts for warranty by estimating how much money will be spent on fulfilling those warranties. They subtract this estimation of warranties from the total revenues for shipped products. For other types of specific contracts, such as service contracts, they use the percentage-of-completion accounting method which will be paid off as the work is being done. The way they determine the percentage of work completed is by estimating how much the service generally costs. They get this estimation from recent service information that has been gathered.
Due to the way that this company currently recognizes revenue, there is a possible opening for the manipulation of revenues. For example, looking at Wareham’s current revenue recognition policy, they could overstate or understate the estimation of how much they will lose on product warranties on shipped products. Since this figure is an estimation, as long as it sounds reasonable, they can adjust the numbers a bit to make it more favorable for their company. When looking at their service contracts, there is another estimation that can be manipulated. Since the revenues of these contracts are recognized by the percentage-of-completion and they’re the ones determining the actual percentage completed, this leaves room open for manipulation. For example, let’s say that there is a contract that is estimated to cost $200,000.00. Depending on whether the company wants to say they’ve completed 20% or 25%, that is a difference of $10,000. What if the company has 40 different accounts like this that are overstated? This case also states that if there are any changes or adjustments that need to be made to the estimated costs or anticipated losses, they can recognize this is in the period they determine.
Based on the new industry SAB