Counting the lecture this week we’ve gone over 3-4 different costing methods as well as several inventory valuation methods…and everyone has seen how much is involved.
For this week….go out onto the web and find a company that has been “caught” reporting costs incorrectly. This could be inventory valuation, it could be costing methods, it could be channel stuffing…
The SEC finds fault with a number of companies each year and one major source of fault are issues around matching inventory costs to revenue properly…so let’s see what you can find
BUT you cannot use those company
Peregrine Systems, Inc.
After my research, the company I chose this week was the HealthSouth. It is the U.S. largest publicly traded health care company. In 2003, HealthSouth met civil charges by the SEC for it presenting fraudulent and overstated financial statements. The higher authorities in HeathSouth asked its underlings to make up numbers and transaction from 1997 through 2002.
During these years, HealthSouth’s CEO and key financial officers boosted its company’s revenue:
Firstly, instead of adhering to the matching revenue and cost principles, the company differed full revenues from prepaid health coverages. Secondly, it overvalued other revenues from healthcare coverages. Lastly, differed routine operational expenses in order to understate future inflate revenues and year’s annual expenses.
“PricewaterhouseCoopers uncovered a total of $1.4 billion in systematically overstated income, which began from 1999. This was in addition to the $1.1 billion identified by the US Justice Department from HealthSouth officials’ admissions of overstated earnings.”
HealthSouth’s CEO, Richard Scrushy, was convicted of bribing the governor of Alabama, for 7-year prison sentence.