What’s the auditor’s responsibilities/liabilities in the GE’s misreporting?

U.S. Securities and Exchange Commission is investigating how GE recognizes revenue and assets from long-term contracts for power-plant repairs, jet engine maintenance, and other services. At the end of the fourth quarter 2017, these contract assets amounted to nearly $30 billion, up $3.7 billion from the earlier year. “A spokesperson said about $15.2 billion of the balance is from long-term service agreements, with the remainder related to equipment contracts. The service contracts are generally 10 to 30 years long.” Requirements: Please read the following two related articles. Then, research accounting standards on accounting for long-term contracts. Please answer the following questions: 1. Use FASB’s codification of standards to find and summarize the U.S. GAAP on longterm contract revenue accounting.

2. Please use some numerical examples to illustrate the recognition and measurement process of long term contract revenue recogntion. Use journal entries to illustrate the revenue and asset recognition process and focus your answer on explaining the statement that “contract assets…are based on revenues GE books on multiyear contracts before it has the cash in hand….” 3. Please use the 2007-2017 annual and quarterly reports to find any (abnormal) patterns of GE’s revenue, net income, accounts receivable, cash and inventory (including contract assets). Please relate the answer to this question to the answer to question 1 and 2. 4. Why has the SEC questioned GE’s determination of these contract assets and revenues? 5. How has the GE’s top executives and corporate culture contributed to the (mis)reporting of revenues?

6. What’s the auditor’s responsibilities/liabilities in the GE’s misreporting? 7. Please find the most recent GE’s annual report and quarterly report (10-K and 10-Q) and press releases to document GE’s response to SEC investigation and GE’s changes in accounting for long-term contracts. 8. Please summarize the ethical lessons that you have learned from this case. 9. You may use other sources available online when you try to answer the above questions. 10. The term paper should be 12-15 pages long (appendices of examples of disclosure are excluded). You should use 12-point Times New Roman font, with double spacing and one-inch margins on all sides. 11. Your term paper should use/discuss these key accounting terms relevant in this case: a. Revenue recognition b. Link between revenue recognition and asset recognition c. Accounting estimate d. Earnings management e. Differences and relations between earnings vs. cash flow f. Accounting errors and restatements