A Comparative Analysis of Overstock and Amazon

Only available on StudyMode
  • Download(s) : 213
  • Published : November 20, 2012
Open Document
Text Preview
Financial Reporting, Analysis and Ethics:
A Comparative Analysis of Overstock.com and Amazon

Robert Baird
BU7545
Fall 2011
Financial Reporting, Analysis and Ethics:
A Comparative Analysis of Overstock.com and Amazon

Robert Baird
BU7545
Fall 2011

Table of Contents|
| |
Executive Summary| 2|
| |
Company and Industry Information| 3|
| |
Accounting Issues| 6|
| |
Accounting Policies and Disclosure Practices| 9|
| |
Financial Statement Analysis| 10|
| |
Corporate Governance| 13|
| |
Conclusion| 15|
| |
References| 18|
| |
Appendices| 21|

Executive Summary
This paper covers the accounting errors related to freight costs that led Overstock.com in 2006 to restate its financial statements for 2002, 2003, 2004 and quarterly reports for 2004 and 2005, and the subsequent SEC investigation in which they were cleared of wrongdoing. It also covers a second restatement from 2009, in which the financial statements for 2009 and 2008 were restated and another SEC investigation related to those restatements. The paper details a glaring problem for Overstock related to its accounting controls and even the company’s admittance in its annual report that it does not have an appropriate number of qualified accounting professionals able to produce financial statements that are free of material errors. Overstock is compared against a direct competitor, Amazon, who although is a much larger company that Overstock, has become the standard in the industry against which all other companies are judged. The financial statements and financial ratios from 2006-2008 of both Amazon and Overstock are shown in comparison with one another to offer some insight into the strengths and weaknesses of each company and to evaluate their performance, and include consolidated statements of operations and consolidated balance sheets from 2005-2008 and common-size statements of operations and balance sheets for each company from 2005-2008, as well as trend statements of operations and balance sheets for each company from 2005-2008. The paper also examines the corporate structure of each company, including the board of directors, the different board committees that exist and compensation practices for senior company executives. The paper concludes that Overstock must put in place the proper controls and hire competent accounting and auditing professionals to ensure the validity of their financial statements.

Company and Industry Information
Overstock.com (Overstock) was incorporated in Utah in December 1998, originally as D2-Discounts Direct, Inc., later reincorporated in the state of Delaware in 2002 and changed its name to Deals.com, Inc. in 1999. Overstock adopted its present name on October 25, 1999 and is based out of Salt Lake City, Utah. Overstock is an online retailer that sells discount merchandise to consumers through its online website. According to Mergent Online, “Overstock.com is an online retailer providing discount brand name, non-brand name and closeout merchandise, including bed-and-bath goods, home décor, kitchenware, furniture, watches and jewelry apparel, electronics and computers, sporting goods, and designer accessories, among other products” (2011). Overstock also sells “run books, magazines, compact discs, digital video disk and video games” (Mergent Online, 2011). The company conducts direct business, in which it orders are fulfilled at Overstock’s warehouses in Salt Lake City, Utah and shipped to final consumers or business, and business with fulfillment partners, which occurs when Overstock sells another manufacturers or retailers merchandise on their website and those third parties pack and ship orders. Overstock, however, does “handle returns and customer service related to substantially all orders placed through its website” (Mergent Online, 2011). According to Mergent Online, as of the end of 2010, Overstock “sells to customers in...
tracking img