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Private question!

Managers as agents in a company have the responsibility of properly disclosing the sales of accounts receivables to the relevant users. However, in some instances the issuers may fail to make the disclosure on the defense that it does not affect the company's earnings. When a firm sells its accounts receivable it does not have an effect on the company's earnings but the operating cash flows. Although the sale of accounts receivable does not affect the earnings over time, the managers still have the responsibility of making the disclosures since it creates an avenue for unethical practices when reporting revenue.

For instance, the issuers may overstate the revenues for personal benefits and to give a view of a good fiscal health. therefore, the responsibility of managers to make proper disclosure on the sales of a company's accounts receivable is not reduced by the fact that the sales have no effect on the earnings.

The management should make all the disclosures for a company's transactions whether they have a significant impact on revenues and earnings. Based on this argument, the sale of accounts receivable is not an exemption for the disclosures.

Disclosure notes provide an explanation on the transactions that a company has over the reporting period. Lack of information or disclosures can create opportunities for fraud within an organization that affects the short and long-term financial health. For example, assuming that the Walt Disney Company sells $150 millions of its accounts receivable for 2016 in the current year, lake of appropriate disclosures can make the company report this as revenue. although the transaction will increase the operating cash flows, the management can fail to disclose it with an aim of inflating the Revenues.

Management is always responsible to properly disclose the sale of accounts receivables. It could be an indication that the company is trying to accelerate revenue recognition. Because factoring reduces the buildup of accounts receivable, factoring could conceal other parts of the financial statements. The receivables are being recognized in the current period when it was supposed to be recognized in later periods dramatically increasing revenues, operating income, and net income, which is overstated in the current period. Allowance for returns may be understated. Accounts receivable-to-sales ratio, measured by days sales outstanding, will be affected, falsely boosting current revenue and earnings.

As a consequence of the sale, examine the relationship between cash flow from operations (CFFO) and net income from a fraud perspective. Assume CFFO may be lagging behind operating income before the sale