preview

Krispy Kreme Doughnuts Inc.

Good Essays

In March of 2009, the SEC filed a cease-and-desist order to Krispy Kreme Doughnuts Inc., for their actions in prior years. The corporation had purposely inflated their earnings throughout 2003 and 2004 in an attempt to meet Wall Street expectations and retain their investors. With the over inflation of their actual earnings, Krispy Kreme was able to present a higher earnings per share (EPS) to the public and therefore become more favorable among investors. In this case there are three primary transactions known as “round-trip” transactions that occur. This meaning that the company was paying set amounts to franchisee’s and then expecting them to return the payments in a prearranged manner. In doing so, this would allow Krispy Kreme to record extra pretax income and therefore inflate their profits. There were also reports of channel stuffing that surfaced from former employees once the SEC began investigating Krispy Kreme. According to the reports Krispy Kreme would send double orders at the end of the year in order to boost their sales and meet expectations. Those orders would then be returned and credited at the beginning of the next fiscal year. Price-Waterhouse-Coopers were the auditors at the time and would then face serious questioning as to why they never noticed the increased shipments at the end of each year followed by the credits when the orders were returned the next year. Looking at the three incidents that occurred each had their own unique distinctions while

Get Access