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Stamford Inc

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Submitted By youlaiyouqu123
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The Stamford International Inc is having trouble reaching its expected earning goals for the 1st quarter. Based on the senior management’s discussion, $0.52per share should be the figure that best reflects the company’s operating results for the current reporting period. This figure is computed upon the preliminary EPS, which is $0.47, plus deferred maintenance cost and spring relocation cost, which amounts to $0.05 in total. As these expenses were incurred last year , they should not be deferred and charged against this year ‘s income, instead, they should be added back to the 1st quarter’s earnings to reflect the true financial position of the company. Stamford’s management will not reveal this figure to the public for interim reporting purpose because it is still below market’s expectation and investors will react negatively to it. To create a more favorable earnings picture, top managements are seeking alternatives to manage earnings through making various adjustments within the scope of GAAP. In this case, a number of controversial accounting issues had created ample opportunities for management to inflate earnings.Table-1 presents possible solutions for each situation under earnings management. After making the above adjustments, the company will report a much more favorable EPS , which is $0.63 ,to the public of (see Table-2) however, ] management may feel pressure in signing the 1st quarter ‘s Sarbanes Oxley certification for several reasons. Firstly. the misstatement of earnings is likely to exceed 5% of income, thus will have a material effect on the financial statements. Management worry that this materiality issue will address SEC’s concern and subject to substantial punishment .Secondly, the internal auditors’ report has detected several questionable accounting practices of Technological Product Division(Table -3 summarized the reasons ). Once

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