...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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...Groupon’s Financial Restatements Jessica Pegg ACC 537 May 12, 2013 Jeffrey Collins Groupon has experienced some problems the buzz started around the anticipation of the company going public. Legalities surrounding expiration dates of coupons (Tribune Staff and News Services, 2012) and suspicions arising from use of an accounting method described as “Adjusted Consolidated Segment Operating Income” (Groupon, 2012), are just two problems facing the relatively new company. Financial misstatements have occurred with the company more than one time. Despite the effects this has had on their image in the business world, Groupon believes they have weathered the storm and created an invested customer base despite the hiccups they have faced along the way. In late September 2011, Groupon restated its 2010 revenue figures due to "an error in presentation" discovered by regulators (Groupon, 2011). The accounting method, referred to as “Adjusted Consolidated Segment Operating Income,” excludes marketing costs – a major portion of their expenses (Gustin, 2012). This is an example of an accounting principle that needed to be changed. Excluding the marketing costs artificially inflates the net income figures and paints Groupon in a much more positive light than is reality. “Groupon restated its revenue after the Securities and Exchange Commission challenged its methodology” (De la merced, 2012). In 2012, the coupon company was again charged with...
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...STEIN MART INC. RESTATEMENT The Effect of Restatement of Financial Statement for Stein Mart Inc. University of Phoenix Abstract Based on the recommendation from the Audit Committee, Stein Mart Inc. recently decided to restate their financial statements for three years, 2009, 2010 and 2011 due to errors in terms of the value of their inventory and determining the cost of their lease holdings. They stated that in addition to other errors, their inventory was overstated by approximately $3million dollars and their lease holdings were overvalued as well by approximately $5 million dollars. On March 23rd 2013 they filed the current financial statements making them compliant with NASDAQ’s rules, in order to continue trading their stock. Effect of Restatement of Financial Statement for Stein Mart Inc. Businesses are formed for various reasons, they come in various structures and they sell various services or products. The one thing all the businesses have in common is that they cannot remain in business unless they make a profit. Businesses are funded using private funds, borrowed funds or by issuing stock. Revenue is generated by selling products/services. This income is used to pay for wages, equipment, etc. The difference between the Revenue and Expenses is what determines if the business generated a profit or loss. To determine if a business is making a profit, financial statements are prepared...
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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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...Financial Statement Restatement When a company makes an error in accounting, the lasting effects can have a great impact on how the external and internal users of this information perceive the organization. The following is an analysis of the effects of inaccuracies in a Bank accounting for its allowance for loan losses. First National Community Bancorp Inc. (FNCB) in Dunmore, Pa., restated financial results for 2009 and two quarters in 2010 after an internal audit uncovered inaccuracies in its accounting for loans losses. The bank has $1.1 billion in assets and said in October 2010 that the financial statements previously filed with the Securities and Exchange Commission for the year ending Dec. 31, 2009 and the quarters ending March 31, 2010 and June 30, 2010 had to be restated (Stewart, 2011). The analysis of the internal audit found that accounting charges and loan-loss allowances that were previously recorded in 2010 should have been reported in 2009. As a result, the company restated its 2009 financial statement to reflect a loss of $44.3 million, a much larger loss than the $11.3 million loss it initially reported. This adjustment included a $10.1 million addition to the provision for loan and lease losses, $14.5 million additional charges related to other-than-temporary impairment in the securities investment portfolio and an $8.1 million goodwill impairment charge. For the quarter ending March 31, 2010, FNCB reported loss of $825,000 after initially reporting...
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...Financial Restatement Paper Financial Restatement Paper University of Phoenix ACC/537 After the introduction of the Sarbanes Oxley Act lots of companies have had to submit financial restatements in their financials. This paper is to examine the financial restatements that have been done by Kodiak Energy Inc. over the past several years due to incorrect reporting on the value of their stocks. Kodiak Energy entered into an agreement with to purchase land from Thunder River Energy in exchange for shares of stock in the Kodiak Energy Company. Kodiak Energy issued seven million shares reported to be worth $2.00 per share. The SEC decided to look into this arrangement and soon discovered that the shares offered by Kodiak Energy were worth $2.50 at the time of the purchase. Upon the findings by the SEC, Kodiak Energy offered to file a misstatement in order to acknowledge the misrepresentation of the worth of the shares. Kodiak Energy had filed their financials incorrectly 3 separate times each time with the incorrect values reported on their 10-K and 10-Q, and in response the SEC was not satisfied to allow a simple misstatement to be done to correct these errors. With the SEC continuing the investigation into the financial records of Kodiak Energy because they felt that they offered to file the restatement too quickly and were trying to hide that this was more than just an error on their part but was in...
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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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...Overstock.com Restatement Overstock.com restates their financial statements for the last three quarters and their 2008 consolidated financial statements. According to Caleb Newquist, this will be the third restatement for the last three years. Sam Antar, who exposes Overstock.com financial misdeeds, states that Overstock lacked sufficient number of accounting professionals with the essential knowledge, experience and training to effectively account for and perform effective supervisory reviews of significant transactions that resulted in misapplications of GAAP. And that information technology program change and program development controls were inadequately designed to prevent changes in accounting systems which led to the failure to appropriately capture and accurately process data. Sam reported in his blog that Overstock.com violated Generally Accepted Accounting Principles (GAAP) in its accounting for recoveries of amounts due from under billed fulfillment partners. Overstock.com should have restated its financial reports to reflect income when it was actually earned from those fulfillment partners, less a reasonable estimate for uncollectable amounts. Overstock.com took income that should have been reported in prior reporting periods (Q3 2008 and before) and moved it to future reporting periods (Q4 2008 and later) to materially overstate its financial performance in those later reporting periods. Overstock.com increases its future financial performance. Operational...
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...Questions: Critical Legal Thinking Which of the following three legal theories did the Court apply in making its decision in this case? a. Ultramares doctrine b. Section 552 of the Restatement (Second) of Tort c. Foreseeability standard Before we can determine the doctrine used by the court, I would like to first dismiss the ones that do not apply. a. The court could not have used the Ultramares doctrine because GKCO was not in privity relationship with the bank or any other third parties. b. The use of Section 552 of the Restatement (Second) of Tort could have been the court’s only resort to make its decision. GKCO failed to include in the main sections of the financial report figures of great importance. Instead, GKCO included these figures in the report’s footnotes. c. The court could not have used the foreseeability standard. Because the accountant did not prepare the financial reports with the intention of informing Johnson Bank. In fact, GKCO did not know Brandon was intending to use the reports –already done by GKCO- to obtain a loan from Johnson Bank. The Court applied Section 552 of the Restatement (Second) of Tort. This doctrine says that the accountant is liable only for negligence to third parties who are members of a limited class of intended users of the client’s financial statements. (Cheeseman 806) Business Ethics Should GKCO have listed the lawsuit as a contingency rather than an asset? Yes. The lawsuit in process should have been listed as a contingency...
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...Accounting Changes Crystal Williamson Professor Gurey Acc499 April 24, 2012 1. Discuss the primary reason for the restatement and the impact to the financial results for the company you selected. Apple Inc. is an American multinational corporation that designs and sells consumer electronics, computer software, and personal computers. The company is best-known for its Macintosh line of computers, the iPod, the iPhone and the iPad. As of July 2011[update], Apple has 357 retail stores in ten countries. It is the largest publicly traded company in the world my market capitalization. as well as the largest technology company in the world by revenue and profit. Although Fortune Magazine named them the most admired company in the United States in 2008, Apple has received widespread criticism for its environmental and business practices. Apple issued a statement stating that the Company would likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants. The Company had not determined the amount of the charges, the resulting tax and accounting impact, or which periods may require restatement. Therefore, the Company filed a Form 8-K stating that the financial statements and all earnings issued by Apple relating to periods beginning on September 29, 2002 should therefore not be relied on. The investigation is still going on so Apple is delaying the filing of its Form 10-Q for the...
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...Restating Financial Reports” It is well known that over the past decade the amount of errors being discovered within the financial statements of publicly held companies has risen. One such error was announced by the internet sales company Overstock.com in early 2009. Due to an accounting error, partners of the company were under billed by $1.8 million dollars over the course of 2008. Overstock chose to record this entry incorrectly which falsely ballooned the company’s revenues; in turn, causing them to record an incorrect profit of $1.0 million for the year ended December 31, 2008. Had this entry been booked correctly and within the guidelines of the generally accepted accounting principles (GAAP), Overstock would have recorded its earnings correctly, showing a loss of $0.8 million. This shows us how important restating a financial statement correctly is so important. A financial statement restatement occurs when a company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported. A financial statement also occurs when there needs to be a change in accounting principles or there is an error. The number of financial restatements by public companies has increased in the recent years due to increased scrutiny following the well-known accounting scandals at Enron and WorldCom, amount others. The restatement usually involves a completely new audit and in some cases may affect future financial statements...
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...Sarbanes-Oxley In Week 1 we studied the general importance of the "rules of the game" (property rights and the rule of law) to a well-functioning economy. This week, we focused in more closely on the "rules of the game" regarding corporate governance and financial reporting. The Week 6 topic of fraudulent financial reporting relates to corporate top management that enriches itself and abandons its obligations to shareholders, employees, creditors, government, and the general public. The Agency Problem Economists call this failure of duty the problem of "agency." Top management is supposed to be the fiduciary (faithful agent) of the shareholders that own the enterprise. But a corrupt agent neglects fiduciary duty to the principal in favor of his/her own selfish interest. Lawyers refer to this same problem as a failure to perform “fiduciary duty” and a "conflict of interest." Ethicists see the problem as deviation from moral conduct. But, whatever terminology is used, the problem remains the same: how can the management agency be kept faithful to its fiduciary duty to the owners, and to the other stakeholders (employees, creditors, government, and the general public)? This is a fundamental and difficult problem. The founders of the United States confronted it in attempting to create a federal government that would be powerful enough to perform its functions, but not so powerful that it would become as oppressive to Americans as the English government the American Revolution...
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