Round-Tripping
Definition
A circular transaction in which cash or assets flow between two or more related parties so that each records revenue without any genuine economic activity. The cash returns to its origin, but each income statement shows inflated income. Common in technology and telecommunications frauds.
- Mechanism
- Cash or assets flow between related parties in a circle
- Effect
- Each party records revenue without genuine economic activity
- Common in
- Technology and telecommunications frauds
- Category
- Revenue recognition fraud
Common questions
How does round-tripping actually inflate reported income if the cash just comes back?+
Each participating company books the incoming payment as revenue on its own income statement while the corresponding outgoing payment is often capitalised or classified as an expense elsewhere, so total reported top-line revenue rises across the group even though no net cash or value was created.
What red flags typically signal round-tripping to a forensic accountant?+
Simultaneous or near-simultaneous matching transactions between related entities, revenue growth without a corresponding increase in genuine customer demand, and contracts that swap similar goods or services of comparable value are common indicators worth investigating.
Why has round-tripping been particularly associated with telecom and tech companies?+
Capacity swaps, such as trading network bandwidth or IT services between companies for mutually offsetting amounts, were historically easy to structure and hard for auditors to value independently, which made the sector a recurring venue for this scheme in the early 2000s.
Related terms
- Bill-and-Hold
- An arrangement where title passes and revenue is recorded even though the seller retains physical possession of the goods at the buyer's...
- Bill-and-Hold Arrangement
- A transaction in which a seller invoices a customer for goods that remain physically on the seller's premises at the customer's request....
- Channel Stuffing
- A scheme in which a company ships excess inventory to distributors or retailers near a reporting period's end to record revenue, knowing...
- Days Sales Outstanding (DSO)
- A ratio measuring how long, on average, a company takes to collect payment after a sale: (accounts receivable / revenue) x 365....
- Fictitious Revenue
- Revenue recorded for a transaction that did not occur at all, or that involved a related party cycling funds to simulate customer...
- IFRS 15 / ASC 606
- The converged international (IFRS 15) and US (ASC 606) standards that replaced predecessor revenue rules from 2018. Both apply a five-step model:...
- Performance Obligation
- Under IFRS 15 and ASC 606, the distinct promise to transfer a good or service to a customer. Revenue can only be...
- Premature Revenue Recognition
- Recording revenue in an earlier period than the standards permit, typically by treating an uncompleted performance obligation as satisfied. The transaction is...
- Side Letter
- An informal or undisclosed written agreement between a buyer and seller that modifies the terms of the primary contract. Side letters are...