Accounts Receivable Misstatement

A recent dispute regarding cash collateral in a bankruptcy reminds us of the ways accounts receivable may be misstated. While there was no finding of accounts receivable misstatement in that case (it was resolved based upon other factors), the debtor may intentionally or unintentionally have errors in reporting accounts receivable to a secured creditor because: accounts have been re-aged; bills of lading have been altered or shipments have been pre-billed.

Re-aging means a newer invoice replaces an older invoice or the accounts receivable listing has erroneous dates for aging, such as the date of last payment instead of original invoice date. These errors can be detected through analysis of all invoices listed to a customer.

Altered bills of lading would indicate delivery and acceptance by a customer when in fact it has not occurred-analysis of the original (not a copy) and confirmation of account receivable balances with customers directly can detect this problem.

Pre-billing records the account before it has been shipped. Comparing the original bills of lading and direct customer confirmation are also effective to identify this practice.

Weak password protection can be worse than no password protection; weak password protection gives the illusion of protection.

It is important to remember that the 'protection' tool in Excel should really only be used to prevent the accidental deletion of formulas or data as opposed to preventing users from intentionally editing files. Excel uses a very simple encryption system and as such protection passwords can be easily broken. A simple search on Google for "Excel password" shows that numerous tools are available that can recover 'forgotten' Excel passwords. These tools can also be used to unlock protected Excel files, forgotten or not. Our firm has had experience using ElcomSoft's "Advanced Word" and "Advanced Excel" products to open password protected Word and Excel files.

If security is of a real concern, then Excel is certainly not the best platform to use. If someone is insistent upon editing your data, then they can.

A Separate GAAP for Private Companies?

According to the American Institute of Certified Public Accountants (AICPA), the accounting profession will work with the Financial Accounting Standards Board (FASB) to evaluate potential changes to generally accepted accounting principles for privately held, for-profit companies. As reported on AccountingWeb.com, the AICPA Council resolution directs AICPA management to work with the FASB in identifying and implementing a process for evaluating potential changes in recognition, measurement and disclosure from GAAP currently applied by public companies.

"Private companies are a vital force in the nation’s economy and it is, therefore, critical that their financial reporting be conceptually sound, cost effective and provide relevant, reliable and useful information," states Robert Herz, Chairman of the FASB. "The FASB has taken a number of steps in recent years to increase the voice and participation of private company users, preparers and auditors in FASB activities, and to codify and simplify the GAAP literature. We are very open to exploring ways to further enhance the overall value of private company financial reporting."

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