Executive Summary Revenue Recognition and Wareham Sc Systems, Inc.

899 Words Apr 24th, 2013 4 Pages
Revenue Recognition and Wareham SC Systems, Inc.

Wareham SC Systems, Inc. is a capital equipment and testing instrument manufacturer and supplier comprised of three divisions: the Glendale Division, the Advanced Technology Division and the Technical Devices Division (Anthony, Hawkins, & Merchant, 2011, p. 137). In 1999, Somai Desai, the company’s chief financial officer, received news that the Security Exchange Commision (SEC) issued a new set of revenue recognition and reporting guidelines which were to be implemented no later than the fourth quarter of 2000. These new guidelines called the Staff Accounting Bulletin No. 101 (SAB 101), provided more specific criteria for revenue recognition and are listed as
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The Technical Devices Division manufactures, develops and sells a variety of electrical, electronic and mechanical testing devices. Historically, the division’s internal sales force sold directly to high-volume customers while independent distributors sold to low-volume customers. Days before Desai announced her review of the company’s sales transactions, the Technical Devices Division turned over sale of high-volume mechanical testing devices over to independent distributors due to decreased demand and profitability. Distributors were also asked to increase their inventory from a few weeks worth to two years worth. In doing so, the Technical Devices Division, recognizing that they may not meet the quarter’s profit goals, may be attempting to deceptively misrepresent revenues on the company’s financial statement. Not only does this defy the General Accepted Accounting Principles but is does not satisfy the criteria requiring them to provide persuasive evidence that an arrangement order exists. To make matters worse, the contract with Ashaban Industries further increases the uncertainty that sales proceeds can be met

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