Midnight Journal Entry
The Midnight Journal Entry
Anne T. Lawrence, San José State University
On an overcast afternoon in Portland, Oregon, on Friday, March 28, 2003, Richard Okumoto intently studied a set of hard-copy accounting documents called “adjusting journal entries” spread out on his desk. He had been appointed chief financial officer (CFO) of Electro Scientific Industries, Inc. (ESI), a multi-million dollar equipment manufacturer, just a few weeks earlier. Okumoto was in the midst of closing the company’s books for the third quarter of fiscal year 2003, which ended February 28. An experienced executive who had served as CFO for several other technology firms, Okumoto was familiar with the task, which normally would be routine. But this time, he felt that something was seriously amiss. When reviewing the company’s recent results, he had noticed a sharp dip in accrued liabilities between the two quarters ending May 31 (the last quarter of the 2002 fiscal year) and August 31 (the first quarter of the current fiscal year). Now, looking at the detailed journal entries his staff had provided, he noticed that several significant accounting entries had been made around midnight on September 12, 2002. The entries made that September evening had significantly changed the company’s results for the quarter ending August 31, 2002, a few days before they were reported to the Securities and Exchange Commission. He later recalled:
The fact that the time stamps [on the journal entries] were midnight through one o’clock in the morning made me believe they were having difficulties closing the quarter. Not just because of accounting difficulties, but because they were having difficulties finding the right answers. My initial reaction was, even given a difficult quarterly close, if the team was working that late at night, that wasn’t typical.
From the pass codes required by the accounting software, Okumoto could see who had made the entries. They included James Dooley, then the
Anne T. Lawrence, San José State University
On an overcast afternoon in Portland, Oregon, on Friday, March 28, 2003, Richard Okumoto intently studied a set of hard-copy accounting documents called “adjusting journal entries” spread out on his desk. He had been appointed chief financial officer (CFO) of Electro Scientific Industries, Inc. (ESI), a multi-million dollar equipment manufacturer, just a few weeks earlier. Okumoto was in the midst of closing the company’s books for the third quarter of fiscal year 2003, which ended February 28. An experienced executive who had served as CFO for several other technology firms, Okumoto was familiar with the task, which normally would be routine. But this time, he felt that something was seriously amiss. When reviewing the company’s recent results, he had noticed a sharp dip in accrued liabilities between the two quarters ending May 31 (the last quarter of the 2002 fiscal year) and August 31 (the first quarter of the current fiscal year). Now, looking at the detailed journal entries his staff had provided, he noticed that several significant accounting entries had been made around midnight on September 12, 2002. The entries made that September evening had significantly changed the company’s results for the quarter ending August 31, 2002, a few days before they were reported to the Securities and Exchange Commission. He later recalled:
The fact that the time stamps [on the journal entries] were midnight through one o’clock in the morning made me believe they were having difficulties closing the quarter. Not just because of accounting difficulties, but because they were having difficulties finding the right answers. My initial reaction was, even given a difficult quarterly close, if the team was working that late at night, that wasn’t typical.
From the pass codes required by the accounting software, Okumoto could see who had made the entries. They included James Dooley, then the