American Italian Pasta Company

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Overview
* First I will give you some background information on the American Italian Pasta Company * Then I will discuss their charges in a format of what they did wrong, followed by what they should have done * Finally, I will tell you the consequences of their actions Background

* AIPC was established in 1988, and they have grown to become North America’s largest producer of dry pasta * They have locations in SC, AZ, and Italy
* Their stock was listed on the NYSE in October of 1997, and it was suspended in December of 2006 and delisted in April of 2007 after they failed to publish their annual report in a timely manner * They became involved in an accounting fraud scheme causing them to restate their financial statements from 2002 to 2006

Charges
* Former CEO Timothy Webster set a tone of doing whatever it takes to meet earnings targets, even if they had to artificially do so * He even went so far as to create a “Profit Attainment Task Force” made up of senior managers and accounting personnel. * He used this committee to brainstorm accounting adjustments that could be made to attain earnings targets by increasing earnings Charges

* Instead of pressuring managers to break the rules, he should have set a tone of honesty and integrity to discourage fraudulent behavior * He could have gone so far as to create an anonymous hotline to give employees an outlet to report fraud

Wrongful Capitalization
* AIPC wrongfully capitalized millions of dollars of normal plant operating expenses * They also recorded these expenses at budgeted cost instead of the actual cost * In addition, they capitalized millions of dollars of management information system costs, and made up or inflated costs to offset revenue and earnings deficits Wrongful Capitalization

* When a normal operating expense is incurred, it is supposed to be recognized in full at the time it is incurred, even if the expense is not paid until a future...
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