6.29 REVENUE FRAUD RISKLO4

Leopard Airways isa new clientof your audit firm. Its accounting policy for revenue is tocredit to revenue received in advance, andsubsequently transfer to revenue in the income statement when passengers or freight are uplifted, or when tours and travel air tickets and land content are utilised. Your review of last year's financial statements indicatesrevenue from passengersrepresents80 per cent of total revenue, but that this year there is asix per cent fall in revenuefrom passengers and an11 per cent decrease in revenue from passengers in advance. You have read articles in the financial press which suggest an increased incidence of fraud due to the global financial crisis, and that the majority of these frauds are committed by company directors and senior managers. Required

Explain why the revenue in income statements is at significant risk of fraudulent financial reporting by management.