Peregrine Systems Accounting Scandal

1540 Words Feb 4th, 2013 7 Pages
Assignment 1 – ACC557 – Peregrine Systems Accounting Scandal
Heather Glover
Strayer University

Peregrine Systems, Inc. was an enterprise software company that was founded in 1981 and sold enterprise asset management, change management, and ITIL-based IT service management software. Following an accounting scandal and bankruptcy in 2003, Peregrine was acquired by Hewlett-Packard in 2005.HP now markets the Peregrine products as part of its IT Service Management solutions, within the HP Software Division portfolio.
Wall Street's demand for high growth motivated Peregrine Systems' executives, to fraudulently inflate revenues and stock prices. Peregrine apparently filed materially incorrect financial statements with the commission
…show more content…
Peregrine sold the receivables, transferred title to the factor, who assumed all the risks of ownership. In this factoring agreement the accounts receivable were removed from the balance sheet, and the receivables were sold without recourse. This meant that if the receivables were not collected, the factor cannot demand payment.
In my opinion, Peregrine recorded the "factoring" and assignment of their receivables as a factoring agreement and recorded the transaction as a sale of the receivables. They recorded the cash received and removed the related receivables from the accounts. By removing the receivables, they treated the receivables as if the risk of collection had passed to the bank without recourse. Peregrine concealed the revenue fraud by violating GAAP for financing arrangements. Because Peregrine had given the banks recourse, and frequently paid or repurchased unpaid receivables from them, Peregrine should have accounted for the financing arrangement as a liability and left the receivables on its balance sheet.
Apparently, Peregrine had an agreement with the bank that they would collect the receivables from the customers and, subsequently, submit the payments to the bank. Obviously, when the customers did not pay Peregrine, Peregrine either repurchased the receivables or paid back the bank. $70 million of payments were recorded on the income statement as acquisition or investment related expenses. This action resulted in one-time…

More about Peregrine Systems Accounting Scandal