Case Analysis of Sunbeam Corporation

1370 Words Aug 25th, 2013 6 Pages
Analysis of case 1.4
Sunbeam: The Revenue Recognition Principle

1. Company history

← In April 1996, Sunbeam appointed Albert Dunlap as its CEO and chairman.

← Immediately, the CEO began replacing nearly all of the upper management team and led the company into aggressive corporate restructuring.

← As at end of March 1997, the company arranged special sales contract with the wholesaler provided that the wholesaler could return all of the merchandise, with Sunbeam paying all costs of shipment and storage. This represented a new distribution channel for the company.

← By the 4th quarter of 1997, Sunbeam had recognized $29 million in revenues from bill and hold sales after it began promoting this
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← Audit Standard No.5 – Paragraph No. 69 articulates that existence of “ineffective oversight of the company's external financial reporting and internal control over financial reporting by the company’s audit committee” is an indicator of a material weakness in internal control. ← Under the same paragraph it was indicated that “restatement of previously issued financial statements to reflect the correction of a material misstatement” is also an indication of a material weakness in internal control.

c) SEC Staff Accounting Bulletin No.101 (mentioned in the case).

The SEC had stipulated that the following criteria must be met for revenue to be recognized in bill and hold transactions: ← The risks of ownership must have passed to the buyer. ← The buyer must have made a fixed commitment to purchase the goods. ← The buyer must request the transaction be on a bill and hold basis and must have a substantial business purpose for this request. ← There must be a fixed schedule for delivery of the goods. ← The seller must not have retained any specific performance obligations, such that the

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