Accounting Case Study Essay

608 WordsOct 28, 20123 Pages
1. Retrieve the SEC's complaint against ClearOne Communications (link provided on Blackboard with the case). Describe management's alleged scheme for inflating revenue. Management’s alleged scheme for inflating revenue is that in 2001, when the company was not able to meet their sales and revenue goals, they would record sales on the books as soon as products left the warehouse. So if ClearOne shipped a lot of products during the last week of the quarter (or swept the floor as they call it), they would be able to meet their revenue projections. So basically, they manipulated their revenue by placing significantly large orders during the last few days of the quarter. The CEO then had an agreement with other companies or third party…show more content…
Does the financial statement data presented, in light of your answer to question 2, support that claim? Why or why not? Yes, the financial statement data presented in question 2 supports my claim based on ClearOne stuffing the distribution scheme. The channel stuffing overstated the revenue which was mainly caused due to the activity that took place at the end of the quarter. The high A/R balance raises a huge red flag when comparing to prior years. The Sarbanes Oxley Act was implemented to prevent companies from falsifying their financials while holding their upper management personally liable for what is reported to the IRS. 5. Comment on any other interesting or relevant items you can gather from the financial statement data related to the SEC's allegation. What I find to be interesting is that according to the SEC, by the end of June 2002, approximately 50% of the revenue claimed by ClearOne was a result of stuffing. The A/R in 2002 was $20+ million and 2 years prior the A/R was approximately only $4 million. An auditor would question these numbers since the accounts receivable balance was so high and upon further investigations, they would find that majority of the transactions were listed 2 weeks prior to year end. After reading more about the case, I found it interesting that they reported that the sales revenue went up over 30% in 2002, when in fact it did not go up at all. I would assume that possibly upper management works on

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