SOX and Revenue Recognition

Posted on 11. Nov, 2005 by in Accounting

SOX and Rev RecOne of the primary objectives of Sarbanes-Oxley is to ensure that companies are reporting accurate revenue numbers. Revenue recognition has long been a subject of intense debate and the cause of blatent fraud. Interestingly, a survey of 400 public and private companies by in August revealed that 55% of companies have modified their revenue recognition practices in light of the SOX compliance. Perhaps even more interesting is that 73% of those companies making changes are making “small” changes. What are these small changes? And why weren’t they made earlier?

The study briefly mentions a correlation between the revenue recognition changes and the fact that Sarbanes-Oxley forced companies to re-examine their business models. After doing so these companies realized that perhaps the way they were recognizing revenue was not the best method considering their new and improved business model. However, I would love to see the actual changes that were made – I would not be suprised to see many “borderline” aggresive recognition techniques being scaled back not necessarily due to SOX but to a general heightened awareness of the financial statements and the financial reporting process.

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