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 in which a seller bills a customer but retains physical possession of the product. Revenue recognition depends on control and...
- 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
- Excessive shipments to distributors or other intermediaries, sometimes used with concealed terms to inflate revenue. Whether recognition is improper depends on the...
- Days Sales Outstanding (DSO)
- Days sales outstanding estimates the collection period by comparing receivables with average daily relevant sales over a stated period. Definitions and inputs...
- Fictitious Revenue
- Fictitious revenue is an entry representing a sale or earning event that lacks the claimed economic substance. Investigators test contracts, delivery, 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
- Premature revenue recognition records revenue before the applicable reporting requirements are satisfied, potentially shifting results between periods. Investigators examine contracts, performance, control...
- Side Letter
- An informal or undisclosed written agreement between a buyer and seller that modifies the terms of the primary contract. Side letters are...