The Midnight Journal Entry

Topics: U.S. Securities and Exchange Commission, Corporate governance, Chief financial officer Pages: 2 (401 words) Published: April 29, 2014
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 a deleted journal entry of 977,000 that was favorable to the company’s net income. These 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 This specific entry affected the Asian workers retirement benefits and he had traced the entry to the CEO, controller, and several finance executives of the company. Okumoto notified the CEO James Dooley about his concerns of the Asian workers retirement benefits prior to the journal entry and closing the quarter. It was advised by an outside law firm that it was illegal to cancel retirement benefits without an employee’s consent. Once the company agrees to pay retirement allowances in Rules of employment the company is obligated to pay them. James Dooley the CEO made the late journal entry to make up for an...
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