Peregrine Systems Fraud Essay

1960 Words 8 Pages
Peregrine System's Accounting Fraud

Wall Street's demand for high growth motivated Peregrine Systems' executives, to fraudulently inflate revenues and stock prices. According to the SEC, "Peregrine filed materially incorrect financial statements with the commission for 11 consecutive quarters." Steven Spitzer, a member of Peregrine's sales team admitted to meeting regularly with senior management near the end of the quarter to determine how much revenue was needed to exceed Wall Street's expectations. The primary fraud committed by Peregrine was done by inflating revenue by booking revenue when sales never occurred. By recognizing revenue from sales that never occurred, the accounts receivable balance and net income were fraudulently
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By violating GAAP revenue recognition criteria, revenues and stockholders' equity was overstated, and liabilities were understated. According to FASB statement number 49, .".. when a `sale' takes place under a product financing arrangement the company does not record sales revenue but instead records the proceeds received as a liability on the financial statements."

As a result of recognizing revenue without actually making a sale, Peregrine accumulated a large number of receivables on its balance sheet that would not or could not be paid. To remove the receivables from the balance sheet, to avoid suspicion, and to lower the days' sales outstanding number, Peregrine assigned almost $141.6

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