From my point of view, accounting practices that MINISCRIBE used to fabricate the number in the financial statements can be divided into two aspects. One is about how to increase the NET INCOME and the other is about how to decrease EXPENSE. a)
We know from the news that Mr. Wiles's unrealistic sales targets and abusive management style created a pressure cooker that drove managers to cook the books or perish. And look they did -- booking shipments as sales, manipulating reserves and simply fabricating figures -- to maintain the illusion of unbounded growth even after the industry was hit by a severe slump. Actually a healthier Financial Statement should keep three key points in balance which is the authenticity of the income, the existence of inventory and the existence of accounts receivable. We figure from the beginning of the news that three-month run-up in receivables to $173 million from $109 million, a 59% increase and inventories were similarly bloated, swelling to $141 million from $93 million. No doubt all these spectacular data is fabricated and according to Mr. Wiles's strategy, the executives tried to persuade the audit team to book an inefficient transaction as its sales which assuredly break the real existence of the accounts receivable. All these kinds of sales that MINI fabricated affected the authenticity of the income and increase sales without actual cash flows. Another important way of inflating sales figures that the MINI did is called Stuffing-the-Channel. According to the Revenue Statement Criteria, only when most of the effort required to earn revenues has been carried out and received the cash or a promise to receive cash can the company put it in to Sales. However, the MINI Company not only accelerated inexistent shipments at the end of a quarter to boost sales but even went several steps beyond that. “MINI shipped more than twice as many disk drives to a computer manufacturer as had been ordered; a former MiniScribe sales...
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