3. How would you judge whether a firm is likely to face revenue recognition problems? Revenue recognition issues are the subjects of headlines in our daily newspapers, primarily because major corporations have recognized revenues that did not meet its revenue recognition rule. For businesses that use cash basis accounting, revenue recognition is a simple process; a sale equals revenue, but not for companies that use accrual basis accounting. The more complex the business, the more specialized
-27- Lucent Technologies, Inc.—Revenue Recognition Lucent Technologies designs and delivers networks for the world’s largest communications service providers. Backed by Bell Labs research and development, Lucent relies on its strengths in mobility, optical, data and voice networking technologies as well as software and services to develop next-generation networks. The company’s systems, services and software are designed to help customers quickly deploy and better manage their networks and create
Revenue-Recognition Problems in the Communications Equipment Industry 1) In late 2000, Lucent announced that revenues would be adjusted downwards by $679m as a result of revenue recognition problems. Yet the firm’s market capitalization plummeted by $24.7bn. Why do you think the market reacted so negatively to Lucent’s announcements of the problems? The large drop in market capitalization is probably due to several factors. Historically, Lucent had successfully met analysts’ projections for
PAUL HEALY Revenue-Recognition Problems in the Communications Equipment Industry On November 21, 2000, Lucent Technologies announced that it was revising its fourth-quarter results as a result of revenue-recognition problems discovered by its auditors during the year-end financial review. The revision lowered revenues by $125 million and earnings per share by 2 cents from 18 cents. In response, Lucent’s stock price fell by 16%, to $17.56. One month later, on December 22, Lucent announced that
Executive Summary This memorandum is intended to communicate the deferred tax issues of Lucent Technologies Inc. on the basis of analysis of the veracity of the situation according to the reporting framework’s guidelines to anticipate unfavorable implications that had been resulted due to poor performance of the company over the past years. The Financial Accounting Standards Board (FASB) is the recognized body for making pronouncements as Generally Accepted Accounting Principles (GAAPs) in the
Executive Summary This memorandum is intended to communicate the deferred tax issues of Lucent Technologies Inc. on the basis of analysis of the veracity of the situation according to the reporting framework’s guidelines to anticipate unfavorable implications that had been resulted due to poor performance of the company over the past years. The Financial Accounting Standards Board (FASB) is the recognized body for making pronouncements as Generally Accepted Accounting Principles (GAAPs) in the United
1. ETHICS Ethics refer to “the principles, standard and norms of conducts governing individual and firm behavior” (Peng & Meyer 2011, p82). These principles entail that both individual and firms are to take full accountability of their behaviors and to conform to established principles and values (Thorne, Ferrell & Ferell 2008, p167). This definition will probably raise the concern if there is any distinction between ethics and the law. It is argued that to the degree that law mirrors a society’s
Business Environment and the Industry Industry Specific Challenges WorldCom was a supplier for long distance phone services to many businesses and residents. It started out as a minor business knows as Long Distance Discount Services (LDDS) that developed into the third biggest telecommunications business in the United States dues to the managing of CEO Bernie Ebbers. There were 85,000 workers at its highest with an existence in more than 65 countries. The loss of MCI/WorldCom was the direct
Executive Summary In order to identify Verizon's core competencies, a SWOT and Five Forces analysis was performed. The SWOT analysis showed internal strengths in technology diversification, a large and talented employee resource pool, and an expansive network footprint. Internal weaknesses were revealed that centered on post merger issues such as corporate culture issues, impending workforce retirements, and a lack of systems or process consolidation. External opportunities include the potential
lower net income in that year. The idea is to take a “big bath” to wash the books, resulting in an increased net income for future years. An example would be if a manager shifted profits forward by prepaying expenses, or delaying the realization of revenues. Creative Acquisition Accounting: when a company allocates a large portion of an acquisition price as being “in process”. An example would be using R&D as a large one-time write off charge. Cookie Jar Reserves: a technique where a company