// Fraud schemes
Journal entry testing
Management override and the financial statement schemes that depend on it: fictitious revenue, timing differences, concealed liabilities, and improper valuations.
Fictitious revenue
Revenue is recorded for sales that did not occur or that are with related or sham customers, through manual journal entries, fictitious invoices, or round-trip transactions.
S25Timing differences (cut-off, bill-and-hold)
Revenue or expense is recorded in the wrong period: sales recognized before delivery or acceptance, bill-and-hold arrangements without substance, expenses deferred, or the books held open after period end.
S26Concealed liabilities and expenses (including improper capitalization)
Liabilities and expenses are omitted or understated: invoices not recorded, accruals reduced or reversed without basis, warranty and return obligations ignored, or operating expenses capitalized as assets.
S27Improper asset valuations (reserves, inventory, impairment)
Assets are carried above their realizable value: allowances for doubtful accounts or inventory obsolescence understated, impairments not recorded, or inventory overstated.
S28Management override via journal entries
Management records entries outside the normal processes to change reported results or conceal other schemes. This is the mechanism behind most financial statement schemes and is the focus of journal…