|Financial Statement Fraud |
|Navistar International Corporation |
TABLE OF CONTENTS
|Introduction |3 |…show more content…
However, Stanway and McIntosh believed that the R&Q's estimates were too high.
As a result, they demanded that the group add "below-the-line" items to reduce the amount of warranty liabilities that the company would have to report on its financial statements. The issue with this is that the additional items embedded into the calculation were not supported by any evidence. These items included anticipated engineering improvements that had no evidence of actually decreasing the amount of claims, and vendor reimbursements for warranty claims even though these arrangements were usually not specified in the contractual agreements with vendors. With these new reductions to estimated warranty liabilities, the estimation no longer followed GAAP since it included potential reductions in future warranty costs that were not backed by any evidence.
As reported in the SEC's litigation filing, improper recognition of rebates as revenue accounted for $9.7 million of Navistar's pre-tax income misstatement in 2004 and $8.5 million in 2003. The company's rebate transactions involved the participation of several key figures in the Engine Division. Akers, the Director of Purchasing, was the first to suggest using rebates to inflate revenue. McIntosh, CFO, would help Akers negotiate and draft the letters for the rebates, and Stanway would approve