What could indicate a fictitious revenue scheme in accounting?

A large amount of overdue accounts receivable is a significant indicator of a fictitious revenue scheme in accounting. In a typical scenario, when revenue is recorded that lacks legitimate sales activity, it can result in inflated accounts receivable figures. If the accounts receivable are overdue, it raises a red flag, suggesting that the sales recorded may not be legitimate, as it implies customers are either unwilling or unable to pay for goods or services that were supposedly delivered.

In a fictitious revenue scheme, a company might create fraudulent sales entries to enhance its financial performance on paper, while the collections of these sales do not materialize. Monitoring overdue accounts receivable becomes essential, as such a pattern could suggest that the company is recognizing revenue that does not correspond to actual sales, leading to potential misrepresentation of financial health.

In contrast, a decrease in sales revenue may reflect a genuine downturn in business rather than fraud, regular cash inflows from legitimate customers indicate a healthy operational cash flow which opposes the notion of fictitious activities, and an increase in asset values could arise from legitimate appraisal or operational growth, rather than suggest any fraudulent behavior. Thus, the presence of large overdue accounts receivable highly correlates with the potential for fictitious revenue manipulation.