Miniscribe

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Assignment 3

1. List accounting practices that were used to fabricate the numbers in the financial statements.

The unrealistic sales targets and abusive management style created a pressure cooker that drove managers to cook the books or perish. And cook 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. They also booked returns as inventory, carried obsolete parts and scrap from the old year’s inventory on next year’s books, packaged approximately 6,100 disk drives that had been contaminated in order to inflate inventory, intentionally shipped the same goods several times to enlarge accounting receivable.

2. Comment on the internal accounting control of MiniScribe, specifically the reasons for its ineffectiveness in preventing fraudulent financial reports.

Internal accounting control is crucial to internal control in a company. Accounting control is the methods and procedures for authorizing transactions, safeguarding assets and ensuring the accuracy of the financial records. I think the most important reasons of the totally failure of internal control to prevent fraudulent financial reports in MiniScribe Corporation was the autocracy of the chairman and dereliction of auditors. MiniScribe Corporation afforded too much freedom and authorization to chairman and managers. At the same time, the audit committee, Coopers & Lybrand Corporate, could not meet its duties. The chairman chased excessively high sales, so he forced managers to enhance sales. However, the managers could not attain the sales, so they had to directly tell accountants to inflate the figures. This situation was so common in the company, totally violated the accuracy principle of the financial records. What’s more, the large amount of inventory which used for attracting assets was eventually proven to be spurious. The money borrowed from creditors...
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