Financial Statement Restatement Paper
It is well known that over the past decade the amount of errors being discovered within the financial statements of publically 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.
To make matters indefinitely worse; this was the second issue dealing with Overstock’s financials in less than six months. Chris Kanaracus of the journal, Computerworld, stated that problems had risen with Overstock’s software and network provider Oracle in which Overstock employees did not properly hook up certain wires and when manually trying to fix the issue, some of these “wires” were overlooked. These seemingly small issues turned into a rather large problem that caused Overstock to have to restate its financials all the way back to 2003.
For the restatement of the year-end 2008 financials, several accounting principals were violated. First is the principle of revenue recognition. The revenue recognition principal states that revenue must be recognized in the period the product or service is sold or rendered. Since the partners should have been billed in previous periods, the prior period statements should have been adjusted to show this change. Another principal not adhered to was the principal of conservatism. Conservatism, in general, states that when two or more options are available for recording an accounting...