Start from the baseline you learned with the revenue standard. Under ASC 606 / IFRS 15 / Ind AS 115, revenue is recognized when (point in time) or as (over time) the entity transfers control of goods or services, in the amount it expects to be entitled to. Revenue too soon keeps the customer real but cheats the when, or the how much of the contract counts yet.
(a) Cut-off games: holding the quarter open
The move. Ship on 2 January and book on 31 December. Backdate contracts. Keep the sales ledger open a few extra days ("the 35-day month"). Or "spring-load" quarter-end by pulling forward orders with side discounts or extended terms.
The entries. Dr Accounts receivable / Cr Revenue (and Dr COGS / Cr Inventory) dated inside the quarter for a sale that belongs outside it. Nothing is invented; time is bent.
The residue. You get a back-loaded quarter, with an outsized share of revenue booked in the final month/weeks. Receivables spike at period-end relative to the quarter's revenue, and next quarter starts weak.
The tests. Watch for quarterly DSO (AR ÷ revenue × 91) trending up, and for a Q4 share of annual revenue that rises over the years without a seasonal reason. Read revenue linearity disclosures where they exist. Above all, look for the classic pairing of accelerating revenue with decelerating collections. In conference calls, listen for "strong quarter-end close" as a recurring phrase.
On the record. GE's 2009 SEC settlement (see earnings management) included end-of-quarter acceleration of locomotive and aircraft-parts revenue. In India, the pattern usually surfaces as March-quarter bulges: the fiscal year-end quarter carrying an unexplained share of annual sales, with receivables rising in lockstep.
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(b) Bill-and-hold: selling goods that never leave the warehouse
The move. Book the sale while the goods sit in your own warehouse, "held for the customer." Legitimate bill-and-hold exists, but only under the explicit ASC 606/IFRS 15 conditions. The customer must have a substantive reason to request it, and the goods must be identified and segregated. They must be ready to ship and impossible to redirect to anyone else. The shenanigan is manufacturing these arrangements to drag future quarters' sales into this one, often with hidden rights of return or contingent payment.
The entries. Dr AR / Cr Revenue; Dr COGS / Cr Inventory, booked while the physical goods remain on the seller's premises, now relabeled "customer-owned stock."
The residue. Receivables rise, because the customer hasn't really committed cash. Warehouse costs continue. If returns follow, revenue reverses later. Sometimes the only disclosure is a bland policy note saying "the company enters into bill-and-hold arrangements."
The tests. DSO again, and the revenue-recognition policy note (Ctrl-F "bill and hold," "delivered ex-warehouse"). Inventory not falling in a blowout sales quarter is a beautiful tell. You booked COGS, but the pile of goods suggests otherwise, or the goods sit reclassified. Ask the question the revenue standard taught you: did control really transfer?
On the record. Sunbeam (1997–98) is the canonical case. Under "Chainsaw Al" Dunlap, Sunbeam booked winter bill-and-hold sales of barbecue grills to inflate 1997's "turnaround." The SEC alleged that at least $60m of 1997's reported record income (~$189m) came from fraud, and the 1998 restatement gutted the reported turnaround. Dunlap paid $500,000 and accepted a lifetime officer-and-director bar (settled 2002). The residue was six months of grills in a warehouse. Barbecue grills, sold in winter.
(c) Channel stuffing: borrowing revenue from your own distributors
The move. Force-feed distributors and dealers at quarter-end: extended credit (90 days instead of 30), extra discounts, rights of return, "buy now or lose your territory." Primary sales (to the channel) sprint ahead of secondary offtake (to end customers). The revenue is technically real, because the goods did ship. But it's next quarter's demand, and often it comes back.
The entries. These are ordinary sales entries. The corruption is in volume and terms. The secondary sin is understating the rebate/returns provision that the stuffing terms create: omitting Dr Revenue (or Trade-scheme expense) / Cr Provision for returns & rebates.
The residue. DSO climbs quarter after quarter. Distributor/channel inventory builds, which better companies sometimes disclose and which is often visible only in industry data. Rebate and discount accruals stay suspiciously flat while "scheme" intensity rises. Then comes the cliff, a "channel correction" quarter where revenue collapses as distributors destock.
The tests. Start with the DSO trend against revenue growth. As a rule of thumb, receivables growing >1.3–1.5× revenue growth for 2+ periods demands an explanation. Then use primary vs secondary data wherever it exists. In Indian autos, compare company wholesales with VAHAN registration data (free, government-published). For FMCG, compare reported growth with the Nielsen/retail-audit growth cited in industry commentary. Finally, track the returns/rebate provision as % of sales (falling while growth "accelerates" = flag).
On the record. Bristol-Myers Squibb (2000–01) stuffed roughly $1.5bn of excess drug inventory into wholesalers using incentives, later restating about $2.5bn of revenue and paying a $150m SEC settlement (2004). In India, watch the auto sector's periodic wholesale-vs-registration gaps and FMCG "pipeline filling" ahead of launches. That's usually rung-2 aggression and not fraud, though the arithmetic is identical.
(d) Percentage-of-completion abuse: inventing progress
The move. Long-cycle businesses (EPC, construction, shipbuilding, defense, some software implementation) recognize revenue over time, usually by the cost-to-cost input method: % complete = cumulative costs incurred ÷ total estimated costs, and cumulative revenue = % complete × contract price. Both levers invite abuse. Understate total estimated costs and both the percentage and the margin jump today. Overstate "costs incurred" by parking unrelated costs on the contract, and progress accelerates. The reckoning arrives as "unexpected cost overruns" and, under IFRS/Ind AS, an onerous-contract provision that should have been booked the moment the loss became probable.
The entries. Dr Contract asset (unbilled revenue) / Cr Revenue for progress claimed ahead of billing rights. The contract asset, revenue recognized but not yet billable, is the purest sediment in all of forensic accounting. By definition it's revenue backed by neither cash nor an invoice.
The residue. Contract assets/unbilled revenue balloon relative to revenue. Recognized contract margins sit above peers bidding the same tenders. You see periodic downward "revisions of estimates" and exceptional write-offs, and retention receivables age.
The tests. Check the level and trend of Unbilled revenue ÷ revenue. An EPC player drifting from ~20% toward 40%+ is confessing something. Compare margins with the peer benchmark on comparable order books. Read the estimates note, since IAS 8/Ind AS 8 requires disclosure of revisions. And check cash conversion, the free-cash-flow tool you already have. POC abusers show chronic CFO/EBITDA far below 1.
On the record. Toshiba (2015). An independent investigation committee found roughly ¥152bn (~$1.2bn) of pre-tax profit overstatement across FY2008–FY2014. Core methods: understating estimated costs-to-complete on infrastructure contracts (POC abuse), delaying loss provisions, and "carryover" games with suppliers in the PC business. Memorize the committee's cultural finding. Top management set unattainable "Challenges," and a culture where subordinates could not contradict superiors did the rest. Three CEOs resigned. No cash was stolen. Earnings were simply moved, and it still destroyed the company's credibility and, eventually, its conglomerate form.