Stirling Case Analysis Pointers

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Issue: * issue of revenue recognition. Homex was recognizing revenue from its modular units prior to the date on which an actual sale had taken place * allocation of profit between divisions, the capitalization of expenses, and the meaning of 'working capital ' in a specific setting Case Facts Stirling Homex 's customers consisted primarily of public housing authorities who looked to Federal government housing programs as sources of financing for their proposed projects. The programs involved were low rent housing programs under the turnkey program of the Department of Housing and Urban Development ("HUD") and a subsidized housing program under Section 236 of the National Housing, Act administered by the Federal Housing…show more content…
The portion of the total 'contract price allocated by the Company to module installation was recognized on the percentage of completion basis as site preparation and installation work was performed. Stirling Homex 's sales and resulting accounts receivable were either improperly recorded or fictitious, and the Consolidated Balance Sheet included in the Annual Reports materially overstated assets by approximately $36,400,000 as a result of the Inclusion in accounts receivable of sales from projects improperly recorded in th~ current and prior fiscal year. ' Evaluating Homex’s revenue

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