Sunbeam Accounting Analysis
Following are the changes that Al Dunlap initiated after being hired by Sunbeam Inc and the probable opportunities that Dunlap used to manage earnings:
Fired the existing set of senior managers of Sunbeam and appointed his close friends and lieutenants in those positions.
Opportunity: Picked a close set of friends in the key positions like finance, purchasing and human resources. This provides an opportunity to gain control over the operational and financial aspect of the company, thereby eliminating whistle blowing chances and creating an easy …show more content…
Additionally, the company also offered 6 month credit time for most retailers, which is abnormal. These would most likely be sales recorded, increased revenues, increased receivables and reduced inventory.
3. Compare the "as reported" and "restated" financials of Sunbeam. Do you see any evidence supporting the allegations in the differences between these statements?
The allegations made by Barron’s and the evidence from the ‘as reported’ and ‘restated’ financials are mentioned below:
Selling written-off inventory:
In the restated financials, the inventory is only written back by $2.09 MM. If the company had truly written-off saleable inventory, then the restated inventory number would have been increased by a much larger amount. Therefore there is no evidence of these allegations.
Ploughing back product warranties:
In the 1997 restated financial statements, the “other current liabilities have been increased by $37.9 and the long term liabilities have been increased by $13.2MM. This suggests that the warranty provisions allegations might be true. However, this is assuming that these increases are due to the warranty write ups. Restructuring charge in 1996 and 1997 was reversed by $44.7m and $14.6m indicating that the company had an excess charge in the reported financial statements
Lower depreciation charge due to write off of PPE:
In the restated financials of 1996 and 1997, the value of the property