SCIENCE ASSIGNMENT(NO PLAGIARISM, A++ WORK, QUALITY, ON TIME)

Ways to 'hide' losses can be done via many options, but 3 simple ones to understand are revenue recognition, hiding expenses in comprehensive income, and the standards by which a company reports their numbers. Let me explain.

1. As I stated above, revenue recognition was recently on my mind due to required corporate training. When a company records revenue, there are different options they can take when choosing to record revenue on their books. With my company, an ISV, we could choose to recognize revenue from an entire contract when the contract is signed. For example, let's say the contract is for 1 year for $10,000 per month signed in May. If we wanted to recognize all of it at signing, we would enter $120,000 as our revenue for May. No revenue would be recorded afterwards. We could also recognize the revenue per month as it is a subscription. So in May, we would record a revenue of $10,000. If the customer does not pay, defaults on the contract, and we forward to October with the former option, we would need either need to restate our earnings to remove this amount or enter a negative revenue to offset the lost revenue. However, if we use the month by month method, no changes would be made. The former plan would artificially inflate revenue that would need to be addressed later. In this case, we have hidden financial problems in prematurely booking revenue. Using internal controls of not recognizing revenue until the 

2. The next interesting way companies can hide losses is through a concept and balance sheet line item called "Comprehensive Income". Companies are able to hide losses because losses normally show on the income statement; comprehensive income is shown on the balance sheet and includes gains (losses) associated with foreign currency exchanges. Like revenue recognition where companies standards need to be established, many companies utilize a financial consolidation tool that standardizes foreign currency translations at all parent levels of a company hierarchy (ie: Canada, United States, and Mexico may roll up to North America) in relation to a parent company's base currency. This kind of transparency still show movements of cash and assets within a company, but also reports gains (losses) at appropriate levels. A tool I have worked with for 15+ years to aid in comprehensive income transparency is Oracle's Financial Close and Consolidation Cloud (formerly Hyperion Financial Management). Painstaking work to recognize the appropriate base and reporting parent currency is crucial towards guarding against hiding losses in comprehensive income.

3. The final example of a way companies can hide losses is by benchmarking standards. As stated, I have worked with financial reporting tools for a long time. We typically built the financial reporting models around US GAAP (Generally Accepted Accounting Principles) standards. Clients who had offices in other countries would build their own models using the same base or journal data that we used. Approximately 10 years ago, we started building multiple reporting models into our main model to include European IFRS (International Financial Reporting Standards) standards. The reporting standards of different companies can determine what the total revenue is for a company based on various calculation standards. If a company wanted to hide losses that showed in GAAP reporting but not in IFRS, they could determine to report on a different standard. Most companies I work with today have both standards implemented (and also to a country level) so that full transparency is available for auditors.

There are many more ways a company can hide losses, but these are more common methods I have implemented tools to control hiding losses or improper reporting.

#2 Gaudet

Just like most things in life, money is the driving force behind it. A business’s whole agenda overall is to make money to some extent. Sports organizations are no different. The danger of not making money can be the one thing that will take a CEO or Owner of an organization and make them be involved even if they usually aren’t. Another aspect of trying to avoid losses is that investors and sponsors won’t be willing to commit to an organization that doesn’t show they are trending on the upward direction. Again, it boils down to money and they do not want to waste money on an organization that isn’t going up.

Leaders can respond to financial problems by going back to the basic principles of accounting. Revenue Recognition, Cost Principle, Matching Principle, Full Disclosure Principle and Objectivity Principle are 5 basic principles that can aide in maintaining a strong hold on an organization’s financial stability (Schepp, n.d).

Revenue Recognition is a focus that all should have. This principle aids in understanding the income statement of the organization. This period of time is when you see the services provided and the ins and outs of where the money is spent. Knowing what services are paid for throughout the entirety of the year allows the organization to know ahead of time where money has to be allocated or reduced in order to avoid a loss for that year.

Having a strong audit department within the organization is another control that can be implemented to avoid financial losses. Internal Audits enable the organization to pursue and attain various objectives as well as see performance both good and bad (Clements, 2019). The amount of information that can be gathered through these audits only benefit the organization in the long run.  This also provides a chance to catch fraud or loss of capital and allow time to reconcile from these issues and bounce back before the end of the year rolls out.

References:

Clements, J., (2019). The Importance of an Audi System to Companies. Retrieved from https://smallbusiness.chron.com/importance-audit-system-companies-14705.html

Schepps, (n.d.). What are the 5 Basic Principles of Accounting? Retrieved from https://www.consultancellc.com/the-5-basic-principles-of-accounting/