Essay about Ligand Case

1303 WordsMar 11, 20116 Pages
In the year 2002, the US reached a land mark decision when the Sarbanes Oxley act was finally affected into law which principally changed the way auditing and financial reporting was being conducted. This act was prompted by high level frauds that public companies engaged in with regard to financial reporting and auditing practices. The act therefore recommended the setting up of a Public accounting Oversight board which was mainly to conduct regulatory and supervisory roles in auditing public audit firms and individual auditors. This was done through establishment of proper quality control measures on the work of auditors to minimize the audit risks that firms could face while conducting their work. The Ligand Pharmaceuticals case…show more content…
In addition, there are no contingent obligations relating to the seller. The buyer must have an independent obligation to complete the sales transaction and finally, the buyer if acquiring the product for resale has a substantial economic interest other than what is provided by the seller. The general rule however is that revenues are only recognized when realized and earned. (Norton, Diamond &Pagach, 2006).The Sarbanes Oxley act came up with changes that relate to internal control systems within the organization. This was due to the fact that the GAAP revenue recognition policies vary from one company to another and hence there was need to establish a strong organizational structure that included the revenue recognition committee. This committee was to ensure that the company followed the revenue recognition policies that relates to that company. Their duties included ensuring compliance with revenue recognition policies, conducting reviews on significant transactions, supervising other departments with revenue recognition roles and training of other departments and sales team on the proper revenue recognition procedures. (nysscpa.org) 2. Discuss how these accounting standards and concepts were violated by Ligand. The company did not meet all the conditions set out in revenue recognition and hence the earning process was not effectively completed. One major condition is that the products involved must be for resale and that realization and earning of the
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