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Originally posted by competentone
I'll have to plead ignorance on the specific methods the outside auditors use to confirm that receivable numbers are accurate. I do know that following HealthSouth's fraud, the multi-billion dollar write-downs involved hundreds of millions in receivables. What ever methods HealthSouth's auditors were using were not effective in finding the fraud hidden there. I'm not as familiar with the specifics in cases like Enron or WorldCom, but the auditors missed the fraud in these companies too -- the problem is that the auditors can only "spot check" something like receivables, and the company oversees how that "spot checking" is done. The auditors only end up seeing what the company wants them to see.
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Thanks for the explanation of Google's system. That does clarify things. Nonetheless - my points about their receivables composition stands. Receivables should be a slam dunk - but revenue is another story. Bet that a lot of time is spent by the auditors reviewing all aspects of the revenue process - both the software controlling everything and the accounting support for their model.
I can shed some light on audit procedures - without getting too far off topic - receivables at a hospital system (HealthSouth) are MUCH different than just about any other type of business. The doubtful accounts reserves require significant amounts of management judgment, and are extremely difficult to pinpoint. Could go on at length about that - but wrong topic.
A company absolutely does not oversee how auditors perform their testing. Another long topic, will restrain myself here too.
I'm not saying there are no time bombs in Google's books - whether fraud or accounting mistake - I haven't audited them and I only spent a few minutes skimming their latest K and Q. I just wanted to clarify the concentration of credit risk disclosure - and perhaps draw attention to the most sensitive area in a company like Google - revenue. Check out Nortel, BDSI, AOL, Informix, Tekelec, etc. All revenue explosions, but not necessarily fraud.