What's Revenue? by Elizabeth MacDonald: Article Analysis

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"What 's Wevenue?" Managerial Accounting Article Summary Unethical accounting practices can put a company, and its accounting firm, at the center of attention. California Micro Devices Corp (referred to hereafter as Cal Micro) was a chip manufacturer that decided to write off half its accounts receivables in August of 1994. This announcement not only negatively impacted their stock price, but it also triggered an investigation which uncovered many unethical accounting practices. One example of such practices included faking product shipments so that sales could be booked. By midsummer 1994, as much as 70% of quarterly revenue was false. The company had ignored early warnings, such as their auditor Price Waterhouse LLP telling…show more content…
When 1994 arrived the company had dug itself into such a hole it was impossible to reset itself on the right path. In 1994, one-third of the company’s revenue was bogus. Their attempt to try and recover by writing off half its account receivables drew the immediate attention of shareholders who quickly accused them of “financial shenanigans”. This triggered the beginning of the end for the unethical accounting practices. Accounting Rules As a result of increasingly complex accounting rules, abuse of the rules is becoming harder to identify. Ethical accountants believe in full disclosure and communicate the real economic performance and position of a company. From an internal accounting perspective, many of the Cal Micro executives behaved in a way or were in a role which prevented fair accounting. For example, the chairman at the time sat on the board’s audit committee and owned 45.7% of the company. This is clearly a conflict of interest and may have contributed towards less than accurate reports to the board. Another example is the CFO, later holding other titles as well, admitted to falsifying his resume. The only background in accounting he had was a course he had taken in college and received a D in. Yet another example was the credit accountant who created false documents and allegedly lied to the auditors. Due to the roles of these executives being filled by people who were morally comprised, it resulted in unethical behavior.

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