What is Aggressive Accounting?

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As a part of my CPA world I would like to share and encourage those in the accounting profession or business owners to learn more about aggressive accounting.

Aggressive accounting is the use of optimistic projections or gray areas in the accounting standards to create financial statements that present a rosier picture of a company than is actually the case. These actions are taken to give the investment community a falsely enhanced view of a business, or for the personal gain of management.

Examples of aggressive accounting practices include:

• Reserves. Recording a reserve against inventory or receivables that is less than historical experience suggests should be recorded.
• Expense deferrals. Recording an expenditure as an asset, rather than charging it to expense as incurred.
• Asset inflation. There are a number of ways to increase the recorded value of an asset, which correspondingly reduces the amount of reported expenses. For example, the amount of overhead allocated to inventory can be manipulated, thereby driving up the recorded amount of inventory and reducing the cost of goods sold. Also, the capitalization limit can be reduced, so that more expenditures are classified as fixed assets.
• Revenue recognition. Revenue may be recognized before the seller has fulfilled all obligations associated with a sale transaction.

Avoid these aggressive practices and set your team and business up for success by developing policies and procedures which would support in establishing clear goals and expectations.

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Source:  AccountingTools