...Financial Statement Restatement Paper – Citizens First Bancorp, Inc. In 2009 Citizens First Bancorp, Inc. was forced to restate their earnings in the first and second quarters. The first quarter was revised due to “an accounting error on a $7.5 million impairment of its deferred tax valuation allowance” (Barba, R. October 20, 2009). The second quarter revision was a regulatory action by the Federal Deposit Insurance Corporation, which involved allegations of “inappropriate behavior at the company, including removing unfavorable appraisals from the loan files, in an attempt to avoid the recognition of additional loan losses” (Barba, R. October 20, 2009). Errors in accounting principles, along with the effects the restatements have on the company’s financials and stockholders are examined. The first quarter restatement involved the accounting error on deferred tax valuation. Citizens initially overstated their tax deferred asset allowance, and now “it must essentially write down the deferred tax asset, which it does by creating a “valuation allowance” on its balance sheet. That valuation allowance cuts into income reported to investors and can hit a portion of a bank’s regulatory capital, as well” (Alloway, T. November 4, 2010). The write down presented a problem for Citizens because of the financial crisis banks are being forced to hold more tier one capital. A good definition of Tier 1 capital is that it includes equity capital and disclosed reserves, where equity capital...
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...Financial Statement Restatement Paper ACC537 April 13, 2015 Financial Statement Restatement Paper Most companies in the world use accounting principles to help them manage their cash flows that occur on a daily basis. It would be impossible for large companies to function without having an accounting department that measures all the data and ensures the company is profitable. Every transaction that occurs in the company needs to be recorded in an appropriate account to reflect everything that the company does. With so many transactions that occur on a daily basis, companies are prone to making an error in their accounting practices. Most of the time, the errors that occur are not discovered until a few years down the road. This can have a negative impact on the company because they are reporting incorrect data. In this paper, I will discuss Bridgestone Education Inc and the errors that they found in their accounting principles. I will analyze the accounting principles involved in the error; the effect of errors and changes on the financial statement, and the effect the errors have on the stockholders. In the year 2014, Bridgestone Education Inc released a statement claiming that they are looking into the accounting practices of the previous years because they found an error in the reports. According to “Street insider” (2014), “Management has concluded that there are material weaknesses in internal control over financial reporting, as we did not maintain effective controls...
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...Financial Statement Restatement Paper Abstract Restatement of the financials for a company can affect a company tremendously, when it comes to the validity of the company’s financial success. A study was conducted on the company IEC and its financials. For the fiscal year of 2012, the company announced their restatement of their financials. The aftermath of the announcement are discussed. Also, the financial standing, prior to the restatement, is examined. The effects the error had on the company’s shareholders were also determined. On May 1, 2013, IEC Electronics Corp, a public company in the NYSE, (NYSE MKT:IEC) announced that it has filed a current report with the Securities and Exchange Commission (SEC) which it claimed that its consolidate financial statements for the fiscal year, ending September 30, 2012, the quarterly periods during fiscal 2012, and the quarter ended December 28, 2012 were restated due to an error in accounting for work-in-process inventory (IEC To Reinstate Financial Statements, 2013). This error resulted in an aggregate understatement of cost of sales and an aggregate overstatement of gross profit during all such Restated Periods of approximately $2.2 million (IEC To Reinstate Financial Statements, 2013). According to the complaint, on May 1, 2013, IEC announced that it would be forced to restate its consolidated financial statements for its fiscal year ended September 30, 2012, the quarterly periods during fiscal year 2012, and...
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...Financial Statement Restatement Paper Justina Kabanuk University of Phoenix ACC/537 Financial Accounting Steven Hall July 5, 2010 Financial Statement Restatement Paper Financial statement users depend on accurate financial statements from corporations to make proper decisions in regard to financial activities. In rare situations, financial statement users find that the information they had depended on for their decisions was not accurate. Companies required to restate their financial reports risk losing the trust and confidence of the financial statement users. Overstock.com is an example of a company that knows the effects of restating their finances all too well. Following is an overview of the issues that led to the most recent restatements of Overstock.com’s financial statements. Additionally discussed are the accounting principles involved, the effect of the errors and changes to the financial statements, and the effects on the company’s stockholders. In October 2008, Overstock.com publicly announced that it would be restating financial results for a five-and-a-half-year period. The needed revisions to Overstock.com’s Q1 2003 to Q2 2008 financial statements were estimated to reduce revenues by $12...
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...Groupon Inc. was forced to restate their revenue numbers on the financial statements before being able to offer an Initial Public Offer (IPO) in 2011. Groupon is a company that offers daily deals for local services of their customers. These deals can be bought one day and then used at a future date of the customer’s choosing. These offers are comprised of a set portion for the business owner and a markup commission value for Groupon. Previously Groupon would book the entire value of the sale as revenue and then back out the business owner’s portion of the sale and call the remainder as profit. The Securities and Exchange Commission (SEC) has refused this booking procedure and wants Groupon to state revenue as the total value of the sale minus the business owner’s portion of the sale. This brings up an interesting twist on how today’s service based economy can consider booking revenues opposed to a clearer manufactures revenue process. In a traditional manufacturing process it was reasonable to state the total sale numbers of the final products as revenue. I believe this process is acceptable under this traditional way because the timing between purchase of materials and sale of the finished product have different timing. This easily identifiable timing difference between sale and purchase of the product and its components drawls a clear line between the timing of booking revenue and expenses. The fact that the two bookings have different timing allows a company to...
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...Restatement of the Company Zynga is a social gaming company. Many of their games are seen on social media networks such as Facebook, or Google+. On August 11, 2011, Zynga restated their first quarter revenue to reflect an accounting error in their initial IPO (initial public offering) registration. Their second quarter revenue report was increased by 3% over what was reported in first quarter. The error was due to a previous policy estimate (Primack, August, 2011). Accounting Principles Involved In the first quarter, the company’s previous policy was to apply most current estimates of paying players to current period sales. The accounting department did not adjust the deferred revenue balance for revised estimates of related sales in previous periods. Zynga determined the adjustment of the deferred revenue ending balance was necessary according to ASC 250. March 31, 2011 financial statements were restated because Zynga found they had an internal control material weakness of financial reporting for the first quarter (Primack, August, 2011). Effects of Errors and Changes on Statements The effect of the error/change on the restatement was to increase revenue by $7.5 million, as well as an increase to a provision of income taxes by $2.5 million for January, February, and March 2011. In addition, Zynga decreased deferred revenue by $7.5 million as of the end of March 2011 (Primack, August, 2011). Stockholders The shareholders involved in Zynga include: o Kleiner Perkins Caufield...
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...Assignment 1 - Financial Statement Restatement and Ethics Write a two to three (2-3) page paper in which you: 1. Assess the factors that contributed to the financial statement restatement, signifying the executive management team’s attitude toward the restatement. Suggest how the restatement may have been avoided during the initial reporting process. 2. Explain the impact to the company’s stock price when the restatement was released and to future earnings forecast, indicating whether or not you believe the impact to the stock price was justified. 3. Evaluate the restatement in terms of management’s ethical violations according to the requirements of the Sarbanes-Oxley Act, providing recommendations to management on how to avoid these problems in the future. Provide support for your recommendations. 4. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources. 5. Activity mode aims to provide quality study notes and tutorials to the students of ACC 573 Week 3 Assignment 1 in order to ace their studies. ACC 573 WEEK 3 ASSIGNMENT 1 To purchase this visit here: http://www.activitymode.com/product/acc-573-week-3-assignment-1/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACC 573 WEEK 3 ASSIGNMENT 1 ACC 573 Week 3 Assignment 1 - Financial Statement Restatement and Ethics Write a two to three (2-3) page paper in which you: 1. Assess the factors that contributed to the financial statement restatement...
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...Running head: FINANCIAL STATEMENT RESTATEMENT Financial Statement Restatement Paper Financial Statement Restatement Paper Companies must often restate their financial statements to address certain issues that have occurred within the company including changes in accounting principles, changes in accounting estimates, changes in the reporting entity, and errors in their financial statements. “The FASB classifies changes in these categories because each category involves different methods of recognizing changes in the financial statements” (Kieso, Weygandt, & Warfield, 2007, p. 1153). Zynga is the social gaming company responsible for games including Farmville and Mafia Wars. In August of 2011 the company was faced with restating their financial statements for the first quarter of that year due to the detection of certain errors regarding their stated deferred revenue balances. Restatement On August 11, 2011 Zynga, “restated Q1 revenue to reflect an accounting error in its original IPO registration. The new Q2 revenue figure is $242.89 million, which represents more than a 3% increase over the previously-reported figure” (Primack, 2011). Zynga stated that they initially stated their most current estimate for paying players for the current period. However, they did not adjust their ending balance in the account deferred revenue to reflect estimates for the related sales of prior periods. The company determined that ASC 250 required this adjustment of the ending balance...
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...* * Burns is at University of Georgia, Terry College of Business, Athens, GA. 30602, e-mail: nburns@uga.edu. Kedia is at Harvard University, Harvard Business School, Boston, MA 02163, e-mail: skedia@hbs.edu. This paper combines the results of two earlier papers: “Does performance-based compensation explain restatements” by Natasha Burns and “Do Executive Stock Options Generate Incentives for Earnings Management? Evidence from Accounting Restatements” by Simi Kedia. We thank Jean Helwege, Andrew Karolyi, and René Stulz for their comments and advice. We also thank Jim Hsieh, Kose John, Steven Kaplan, Kevin Murphy, Prabhala, Jeremy Stein, Christof Stahel, Ralph Walking, Karen Wruck, David Yermack, participants at the 2003 NBER Universities Research Conference of Corporate Governance, the 2004 AFA Meetings in San Diego, seminars at Arizona State University, Baruch College, Indiana University, Ohio State University, Penn State University, Rice University, Rutgers University, Southern Methodist University, University of Georgetown, University of Houston, University of Illinois, and University of Pittsburgh for helpful comments. All errors are the responsibility of the authors. The Impact of performance-based compensation on misreporting Abstract This paper examines the effect of CEO compensation contracts on misreporting. We find that the sensitivity of the CEO’s option portfolio to stock price is significantly positively related to the propensity to misreport. We do not...
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...Financial Statement Restatement Paper ***** ****** ACC/537 January 13, 2014 Financial Statement Restatement Paper MicroStrategy, Inc. went public in June 2008. It is a software company that had been identified as, “a successful, growing company with positive net income” (Krishnan & Mintz, 2007). Like many managers, the managers at MicroStrategy, Inc. wanted to make a quick profit by using aggressive accounting techniques that artificially boosted revenues, inflated earnings, and raised the stock price of shares. The stock price rose from $20 to $333 in one year after the IPO. The company announced in March 2000, that they were planning to restate financial results for the fiscal years 1998 and 1999 (Krishnan & Mintz, 2007). The company needed to restate its financial statements due to improperly applying early revenue recognition in fiscal periods. The company had been recognizing revenues earlier than what was allowed under GAAP. The company would hold open contracts that had been signed by customers after the close of the quarter until the company obtained the desired quarterly financial results, the company would undersign the contracts and give them an effective date that was in the last month of the previous quarter (Krishnan & Mintz, 2007). The restatement of MicroStrategy, Inc’s financial statements reduced the companies combined revenues for the years 1998 and 1999 to $247 million down from $312 million. About 83 percent of this change was applied...
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...Financial Statement Restatement Financial Accounting/ ACC537 Myrtle Clark Sheila Haskins April 14, 2014 In this paper I will discuss the restatement of Diamond Food Inc.’s financial statements. The errors in accounting principles involved and what effect it had on financial statements. How changes affected the stockholders. In February 2012, Diamond Foods Inc., issued a statement that they have to restate the financial statements for 2010 and 2011. Diamond Foods Inc., was forced by the audit company y to restate earnings after an extensive investigation. It was discovered that “internal controls were inadequate and that certain grower payments for the 2011 and 2010 crops were not accounted for in the correct periods” (Harris, 2012). After the investigation, the Board of Directors took control of the company. The board dismissed the CEO and CFO and placing them on administrative leave. The pending deal where Diamond Foods were to acquire the Pringles brand from Proctor & Gamble is also in jeopardy. This deal was at a value of $1.5 billion which would have given Diamond Foods Pringles potato chips and other products. Diamond Foods remained confident that the financial statements were accurate. the terms The contract between Diamond Foods and Proctor & Gamble, gave Proctor & Gamble an option to withdraw from the deal based on any problems with the financial statements of Diamond Foods. The audit committee investigation was then taken up by the Securities...
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...SUBJECT: Partition of Restatements as Error or Irregularities This memo discusses the main ideas of Hennes, Leone and Miller (2008) research on restatements reclassification that is studied using the guidelines from Gordon and Porter (2009) reading and understanding academic research. Main Research: There has been much research on causes and consequences of restatements. However, these researches are done using data that contain restatements consisting of both accounting errors and intentional misrepresentation. Hennes, Leone and Miller (2008) research suggest that stronger hypothesis can be developed if the restatements are partitioned as errors and irregularities. The research then proposes ways of distinguishing between these two kinds of restatements. The research question is both interesting and important. It will enhance the past literature related to the subject of restatements. Also, restatements have a significant impact on market and must be assessed properly. Following criteria classify a restatement as an irregularity * Firms using variants of words “irregularities” and “fraud” in disclosure * Restatements with related SEC investigation * Restatements with related independent investigation Restatements not meeting the above criteria are accounting errors. Main Findings: The main findings of the research are the following * The market reaction is much severe for irregularities than error * Restatements followed by class action...
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...Description of the Industry Page 4-5 IV. Business Risk: Nature of the Industry Page 5 V. Business Risk: Economic Climate Page 5 VI. VeriFone Governance Structure Page 5-7 VII. NCR Governance Structure Page 7-8 VIII. Restatement Page 8-12 IX. Business Risks: The Company Page 12-13 X. Accounting Policies and Disclosure Practices Page 14-16 XI. Financial Statement Analysis Page 16- 18 XII. Conclusion Page 18-19 XIII. Exhibits Page 20 XIV. Reference Page 21 Executive Summary VeriFone Systems, Inc. is a company who was involved in fraudulent financial accounting. After examining their financial statements and other public information prior to the restatement, an analysis was done to determine whether information about the fraud was present. In addition, this paper will have a comparative analysis with a company called NCR Corporation, which is in the same electronic payment industry. A comparative analysis will be done on both financial and nonfinancial information regarding accounting policies and disclosure practices in regards to both companies. There are many business risks associated with VeriFone’s restatements that are addressed when describing the industry, the company, and the economic climate. VeriFone had many internal control weaknesses that provided management with the opportunity to commit fraud in regards to inventory and net revenue accounts. There is a...
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...abstract Available online 4 November 2010 Researchers have used various measures as indications of ‘‘earnings quality’’ including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because ‘‘quality’’ is contingent on the decision context. We also point out that the ‘‘quality’’ of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. & 2010 Elsevier B.V. All rights reserved. JEL classification: G31 M40 M41 Keywords: Earnings quality Earnings management Review Survey 1. Introduction Statement of Financial Accounting Concepts No. 1 (SFAC No. 1) states that ‘‘Financial reporting should provide information about an enterprise’s financial performance during a period.’’ Borrowing language from SFAC No. 1, we define earnings quality as follows: Higher quality earnings provide more information about the features of a firm’s financial performance that are relevant to a specific decision made by a specific...
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...forth by the Sarbanes-Oxley Act of 2002 and SEC reporting requirements for publically traded corporations. Specifically, this paper analyzes the roles of the Board of Directors (BOD) and CEO’s regarding the establishment of an ethical workplace environment, which generates quality accounting information to be used by shareholders and other investors. Next, a proposed strategy will be recommended to a CEO of a publicly traded corporation, in regards to leading an ethical workplace environment which yields high quality accounting data on a consistent basis. Similarly, a suggestions to management will be made concerning providing assurance to investors with reference to upcoming performance forecasts or expected earnings. The next analysis will be focused on evaluating potential consequences to publicly traded corporations when there is a lack of quality within financial accounting and reporting, and making a recommendation on how to minimize those consequences will be provided. Lastly, the requirements of the Sarbanes-Oxley Act will be assessed in regards to the sufficiency of protection placed on stockholders and potential future investors. Roles of the Board of Directors and CEO First and foremost, the roles of Executives and the Board of Directors include establishing a working environment in which ethical decisions regarding reliable financial reporting are made on a constant basis. Virtually any company can achieve such an ethical environment through the establishment...
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