Revenue Boosting 2678

  • Company A gets an agreement from Company B to flow through a consulting project. Company A will subcontract 100% of the consulting work to Company C. Company A will only make a 5% margin.%0ACustomer_and_lt;----_and_gt; Company B_and_lt;--------_and_gt; Compan A_and_lt;-----_and_gt; Company C%0AThe PO and invoices will say services only. However what is being sold is not consulting services but network cables and electical cables with some services. Company A is providing no resources to work on the SI project.%0APOs come through as mutiple customers. HOwever, there is only one customer. %0AIs this legal? What SOX codes does this violate?%0AThis does not sound proper to me.%0AIt seems that if you are not adding any value that this should not be legal.%0AGiven that products are being sold however the PO, Contracts, and invoice all will say servcies. Seems not proper to mask a product sell with services.

  • Whose perspective are you looking at this from, Company B?%0AIt does not seem illegal from what you describe, it sounds like a straightforward agency arrangement.%0AIn this type of arrangment i would be looking for conflicts of interest in the arrangments between the 3 companies. What is Company A doing for it’s 5%, are the personal relationships in this company? %0AThe descriptions on the PO may not be that important depending on how it fits in the overall scheme of things. If these end up in the right revenue line then there is no ICFR impact.

  • You need to check out the revenue recognition principles in the generally accepted accounting principles on which your financial statements are based (i.e. US GAAP, IFRS, etc.) and the contractual arrangements with customers.

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