Credit and Collection Corporation :: essays research papers

Case Study: Credit and Collection Corporation Credit and Collection Corporation (CCC) is looking to offer stocks to a group of private investors. CCC manages and collects accounts receivables for three different types of customers. CCC uses a local CPA firm to prepare and given an opinion on its financial statements. To improve the favorability of the equity offer CCC has determined it needs an opinion on its financial statements from one of the Big Six CPA firms. The first type of accounts receivable CCC purchases are delinquent accounts. CCC reviews a company’s delinquent accounts receivables, removes problem and bankrupt accounts from the list and then assumes collection responsibility for the collection for a management fee of 30 percent. The second type of accounts receivables are current and delinquent accounts receivable. CCC reviews a company’s accounts receivables then pays the company 95 percent of the value of the receivables selected. Any uncollectible accounts are exchanged with the company for new receivables or are purchased back from CCC by the company. The third type of account receivables are payments due to hospitals, clinics and doctors from third party payers. CCC reviews the accounts receivables to determine the amount that the third party payer will actually be paying. The provider is then paid 95 percent of the determined value and CCC collects from the third party payor. For each type of accounts receivab le CCC generates dun letters and does follow-up collection calls. The first Big Six CPA firm spend several days interviewing CCC personnel and studying the financial data. The CPA firm determined they has serious reservations about revenue recognition. The CPA firm stated CCC was in the collections business and should recognize revenue only after accounts had been collected. The firm based its findings on concept statement number 5. Concept statement number 5 states an item must meet the definition of a financial statement element, the item must have a relevant attribute measurable with sufficient reliability, the item must contain information capable of marking a difference in user decisions, and the information must be verifiable, representationally faithful and neutral. Therefore, revenue should be recognized when realizable and earned. The firm compared CCC’s business to â€Å"real estate accounting rules required the deferral of revenue from a real estate sale, so long as the seller had any continuing involvement with the development o f the property sold.†(Corporate, 99) The firm did not think CCC earned its revenue until after it had sent out the dun letters, made the follow up calls and collected on the account.