Preview

Green Mountain Coffee Roaster

Better Essays
Open Document
Open Document
1080 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Green Mountain Coffee Roaster
Assignment 4-4
Shane Rittenhouse
Acct.310
Ann Remely
6/5/13

Issue
During the fourth quarter of 2010 Green Mountain Coffee Roasters had some accounting irregularities become known to the public. Green Mountain’s problems all started from how they recognized income, though intercompany inventory and third party vendor. After the SEC inquiry, Green Mountain’s accounting irregularities spanned three fiscal years and three fiscal quarters. Starting with fiscal year 2007 and running through the third fiscal quarter of 2010.
In total Green Mountain had five areas of their financial statements in which they did not follow GAAP. The first issue overstated $7.6 million dollars of inventory during the time period, because of an incorrect standard of cost (Dulong, 2010). Next they had a $1.4 million overstated income, because of incorrect accrual amount of incentive programs expenses. Third issue overstated income by $1 million dollars, because of timing classification of historical revenue royalties from third party vendors. Fourth issue overstated $800,000 of income, because of incorrect standards for intercompany inventory cost. Fifth is an understated income of $700,000, because of a failure to reverse accrual customer incentive program. All amounts in this report are amount of pre-income tax earnings.

Rule During this time period Green Mountain has violated three rules from the FASB accounting standards codification: inventory measurement, revenue recognition and multi element revenue recognition. Although the SEC had found more problems than just three, the issues at Green Mountain can be classified into these three areas. The SEC did conduct an 18 month inquiry only, into the financial statements of Green Mountain, costing the company about $4 million dollars (10-k form, 2011)
. The first FASB code violated is 330-10-35 or Topic-inventory, Subtopic-overall, Section-subsequent measurement (FASB ASC 330-10-35). During the SEC inquiry, Green


References: FASB. (n.d.). Retrieved from website: https://asc.fasb.org/home Dulong, S. (2010, Nov 19). Green mountain coffee roasters, inc. announces restatement of financials. Retrieved from http://investor.gmcr.com/releasedetail.cfm?ReleaseID=532051 10-k form. (2011, Sept 24). Retrieved from http://www.sec.gov/Archives/edgar/data/909954/000119312511308748/d232301d10k.htm FASB ASC 330-10-35. (n.d.). Retrieved from https://asc.fasb.org/section&trid=2127015&analyticsAssetName=subtopic_page_section&nav_type=subtopic_page Fasb asc 605-15-25. (n.d.). Retrieved from https://asc.fasb.org/section&trid=2197232&analyticsAssetName=subtopic_page_section&nav_type=subtopic_page FASB ASC 605-25-25. (n.d.). Retrieved from https://asc.fasb.org/section&trid=2197284&analyticsAssetName=subtopic_page_section&nav_type=subtopic_page McHugh, M. (2012, March 22). Math on green mountain 's razor/razor blade model: Dull edges after patent expires. Retrieved from http://www.forbes.com/sites/ycharts/2012/03/22/math-on-green-mountains-razorrazor-blade-model-dull-edges-after-patent-expires/ Flitter, E. (2012, May 12). Court papers show sec 's green mountain probe isn 't over. Retrieved from http://www.reuters.com/article/2012/05/30/usa-sec-green-mountain-idUSL1E8GU9CT20120530
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Powerful Essays

    How Has Golden-Bear Golf Changed The Revenue Recognition?
    • 3734 Words
    • 15 Pages

    How Has Golden-Bear Golf Changed The Revenue Recognition?

    This paper discusses the Golden Bear Golf Inc after Initial Public Offer in 1991, highlighting the accounting practices and methods were used in recognizing the company’s revenue. This paper explains the fraud occurred in recognizing the revenue and how it overstated the financial statements and increased the stock price. It also explains the fraud theory applied to the revenue recognition and the auditor’s failure in discovering the fraud and reports it to the SEC. This paper will provide methods that auditors should follow in auditing public companies and the best practices they should follow if the company changed the revenue recognition.…

    • 3734 Words
    • 15 Pages
    Powerful Essays
    Read More
  • Good Essays

    Impact of Unethical Behavior
    • 427 Words
    • 2 Pages

    Impact of Unethical Behavior

    Over the past decade, numerous accounting scandals have been revealed. The impact of the unethical behavior exhibited in these scandals caused the companies that were affected to have a huge financial loss for the company as well as investors, collapse, or become in a financial crisis (Ashe and Nealy, 2010).…

    • 427 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    What's Revenue? by Elizabeth MacDonald: Article Analysis
    • 1015 Words
    • 5 Pages

    What's Revenue? by Elizabeth MacDonald: Article Analysis

    Unethical accounting practices can put a company, and its accounting firm, at the center of attention. California Micro Devices Corp (referred to hereafter as Cal Micro) was a chip manufacturer that decided to write off half its accounts receivables in August of 1994. This announcement not only negatively impacted their stock price, but it also triggered an investigation which uncovered many unethical accounting practices. One example of such practices included faking product shipments so that sales could be booked. By midsummer 1994, as much as 70% of quarterly revenue was false. The company had ignored early warnings, such as their auditor Price Waterhouse LLP telling them they had weak internal controls. After announcing their 1994 write off another audit took place by Coopers & Lybrand. While Coopers feels that their audit followed best practice, the SEC argued they missed many red flags. Due to this oversight, the SEC attempted to bar the two Coopers audit leads from ever signing off again on public company audits. There were many unethical practices that led to this situation. In the end, the Coopers auditors left to pursue other careers and the company hired Ernst & Young to re-audit their books. This led to the 1995 restatement of 1994 results.…

    • 1015 Words
    • 5 Pages
    Good Essays
    Read More
  • Powerful Essays

    The SEC's Case against California Micro Devices: A Lesson in Using Professional Skepticism and Obtaining Sufficient Appropriate Evidence
    • 2003 Words
    • 6 Pages

    The SEC's Case against California Micro Devices: A Lesson in Using Professional Skepticism and Obtaining Sufficient Appropriate Evidence

    As it pertains to violations of general standards as well as field work, it is evident that in the area of CMD’s write-off of accounts receivable both Michael and Brian showed a severe lapse in judgment in the testing and reporting. The team showed a lack of due professional care by not complying with GAAS. More so, Michael and Brian had several conversations with CMD’s chief accounting officer, and in those discussions, it was made evident that CMD’s goal was to maximize revenue by allocating a larger portion of the write-off to bad debt expense and a smaller portion to returns. Michael and Brian seem to have left the onus of the…

    • 2003 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Audit Failure
    • 355 Words
    • 2 Pages

    Audit Failure

    The action of the Auditors, Audit Committee, and top management that worked for Molex Corporation were in error because FASB Concept Statement #2 (materiality defined) appears to apply to this case and should have know the appropriate way to handle the situation that conforms with GAAP and adjust the financials in the first quarter and note them in the second. Another error I that no mention of the adjustment was ever presented on the financials as to why there was an adjustment.…

    • 355 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    U.s. Securities and Exchange Commission and Client Personnel
    • 351 Words
    • 2 Pages

    U.s. Securities and Exchange Commission and Client Personnel

    A brief summary of the case is, Health Management, Inc., a pharmaceutical distributor had a way of calculating their Allowance of doubtful accounts in a way that was not understood by Securities and Exchange Commission and misunderstood by the financial analysts. This caused the financial analysts to put the post earnings per share at $.74 when it was really $.54. Clifford Hotte, the CEO, was told of the $.20 difference by Drew Bergman, the CFO, and told him he refused to take the hit, because the stock would drop. He had Drew Bergman figure out a way to fix it so they would be on target with what the financial analysts predicted. To fix it Drew Bergman overstated the year-end inventory by $1.8 million along with a couple other small adjustments. The main reason they got away with it is because Drew Bergman used to work for the Auditing Company and therefore knew the company’s procedures. Drew Bergman did this by making false papers and had people lie saying a driver left Pittsburgh facility on April 28, with $1.3 million of drugs, two days before the end of the fiscal year. The truck then arrived after the inventory count in New York and another transfer of more than $500,000 going from New York to Pittsburgh, not using the UPS as usual. Finally they used the false papers and people to claim they forgot to count these drugs and therefore boosted their end of year inventory by $1.8 million.…

    • 351 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    External causes for Enron to collapse
    • 581 Words
    • 3 Pages

    External causes for Enron to collapse

    Hindsight makes it fairly clear that the accounting standards promulgated by the Financial Accounting Standards Board (FASB) were too weak and too ambiguous with respect to the complex trading transactions and financial structures that Enron established and operated. Two areas stand out as ones of particular concern. First, the rules apparently permitted the widespread use of market-to-market (MTM) accounting in areas for which it was not originally intended. Second, the 3 percent rule for outside ownership of SPEs was arguably too low to maintain genuine independence. An underlying issue was that corporate practice (e.g., sophisticated online…

    • 581 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Green Mountain Coffee Roasters
    • 3040 Words
    • 13 Pages

    Green Mountain Coffee Roasters

    Green Mountain Coffee Roasters, Inc. Green Mountain Coffee Roasters currently has a revenue growth rate of 35.5% over the last 5 years. This company is growing right along side the fastest growing portion of the of the coffee industry, the high-end specialty coffee market. Green Mountain is a product leader in this category, they emphasize quality and enjoyment of their product. Green Mountain 's target market is no question wholesaler 's. Green Mountain has over 5,000 wholesale accounts that currently account for 94% of their revenue. In this marketing plan I thoroughly go through who their wholesale customers are, the relationships they have with them, and how they plan to use them in their overall strategy to obtain more customers in different…

    • 3040 Words
    • 13 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Accounting Scandals 2
    • 441 Words
    • 2 Pages

    Accounting Scandals 2

    In 2003, Nortel made a big contribution to this list of scandals by incorrectly reporting a one cent per share earnings directly after their massive layoff period. They used this money to pay the top 43 managers of the company. The SEC and the Ontario securities commission eventually settled civil action with…

    • 441 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    ACC 403: Module 1 Case Assignment
    • 505 Words
    • 3 Pages

    ACC 403: Module 1 Case Assignment

    In the United States financial statements are prepared under a set of principals or guidelines called Generally Accepted Accounting Principals (GAPP). The Financial Accounting Standards Board (FASB) is the current body that ensures specific rules and regulations are strictly adhered to. Countries outside of the United States are also held to a standard that falls under the International Accounting Standards (IAS) and is regulated by the International…

    • 505 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Auditors' Contribution to Subprime Mortgage Crisis
    • 644 Words
    • 2 Pages

    Auditors' Contribution to Subprime Mortgage Crisis

    Consequently, due to investigations by the Securities and Exchange Commission on unethical practices discovered at some firms, along with issues and concerns of other firms, the Financial Accounting Standards Board (FASB) along with the…

    • 644 Words
    • 2 Pages
    Good Essays
    Read More
  • Better Essays

    Xerox
    • 871 Words
    • 4 Pages

    Xerox

    In order to see if fraud had occurred, a fraud examiner would have to gain an understanding of management and what factors motivate them. This area is just as important as understanding the financial statements information. As a fraud examiner some of the key questions that should be covered are: Is management under pressure from Wall Street investors and analysts to meet earning expectations? Is management’s compensation primarily performance based, such as bonuses, stock options? Does management set unduly aggressive financial targets? What is the “tone at the top”? In addition, the fraud examiner should compare the volume…

    • 871 Words
    • 4 Pages
    Better Essays
    Read More
  • Good Essays

    Rule Base and Principle Base Accounting Standard
    • 3207 Words
    • 13 Pages

    Rule Base and Principle Base Accounting Standard

    Although US GAAP are generally considered to be rules-based and International Financial Reporting Standards are claimed to be based on principles and require professional judgment (Schipper, 2003), the distinction between rules-based and principles-based standards is not well defined and can be variedly interpreted (Bennett et al, 2006). The clarifications on the meaning of rules and principles and their dissimilar features can be found in the legal and accounting literature. The definitions in the legal literature are important stepping stone for more complex and industry-specific definitions in the internal realm of accounting…

    • 3207 Words
    • 13 Pages
    Good Essays
    Read More
  • Best Essays

    Sarbanes Oxley Act
    • 3132 Words
    • 13 Pages

    Sarbanes Oxley Act

    This section discusses how Section 404 of the SOX is likely to affect the issue of internal controls. Section 404 was intended to enhance the quality of reporting and increase investor confidence (Office of Economic Analysis, 2009). Section 404 of the SOX, entitled…

    • 3132 Words
    • 13 Pages
    Best Essays
    Read More
  • Good Essays

    Excello Essay
    • 305 Words
    • 2 Pages

    Excello Essay

    At the end of 2010, Excello faced the possibility of not meeting earnings estimates, which affects bonuses, stock options, and shareholders’ earnings (Mintz & Morris, 2011). Terry Reed, the Chief Financial Officer (CFO) of Excello contemplates recording a $1.2 million sale at the end of 2010 instead of in January 11, 2011. The issue at hand is that according to Generally Accepted Accounting Principles (GAAP) Excello must record this sale according the revenue recognition principle. If recorded according to GAAP, the accounting department records the $2.1 million sale to the accounts receivable account until the product ships, at which time the transaction records to the earned revenue account. If Reed records the $1.2 million sale in 2010 instead of 2011, he deceives the internal and external users of the financial reports by artificially inflating the end of year reports for 2010. This is an ethical breach as well as an impropriety against GAAP standards. If Excello inflates earned revenue for 2010, they risk defrauding shareholders according to the Securities and Exchange Commission (SEC). Intentionally reflecting inaccurate information in the financial statements not only breaks state and federal law but also breaches the codes within the Sarbanes-Oxley Act of 2002…

    • 305 Words
    • 2 Pages
    Good Essays
    Read More

Related Topics