Which of the following describes a timing difference financial statement fraud scheme?

The choice that best describes a timing difference financial statement fraud scheme is the act of recording revenue in Year 1 and only receiving payment in Year 2. This situation reflects a timing difference because it allows revenue to be recognized prematurely – before the cash has been received. This can distort a company's financial position, making it appear more profitable in the reporting period than it actually is, which can mislead investors and stakeholders about the company’s true financial health.

In financial reporting, it is essential to follow the recognition principle, which dictates when revenues should be recorded. Recognizing revenue before the corresponding cash is received can manipulate earnings, presenting a more favorable view of financial performance and potentially leading to significant issues if the expected payment is not ultimately received.

Other choices describe proper revenue recognition practices or approaches that adhere to accounting standards. For instance, recognizing revenue in Year 1 when the service is performed aligns with the accrual accounting principle, where revenue is recorded when earned rather than when cash is received. Waiting until a construction project is complete to recognize revenue also follows the completion method, which is in accordance with Generally Accepted Accounting Principles (GAAP). Similarly, recognizing a percentage of revenue based on project completion adheres to the percentage-of-completion method, which is appropriate