Auditing
I THE RED FLAGS and the Allegations by the SEC
-1996, Ruttenberge family sold a large chunk of stocks for $49.6m on the second public offering while the financial statements continuously showed positive trends
- The financial statements analysis
- Cash flows were negative while profit was reported. Early 1999, liqutity problem arised, sold $200M of high-yield or Junk bonds in mid 1999.
- Justice Department:
Adam Gilburne: guilty to conspriracy to commit wire and securities fraud to inflate earning 96-99. He was alleged of drawing up a list of good and bad items to adjust income to meet analyst 's expectations. Imporperly recogmnzing unearned and fictitious recievales from its vendors
- SEC: 3 Financial Fraudent Schemes 1 Imporperly recogmnzing unearned and fictitious recievales from its vendors * GAAP: Revenue recognition when realized or realizable and earned (Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.)
A/R-vendor allowance XX
Revenue XX
Advertising Exp XX
A/P or Cash XX
the allowance not to be offsets against advertising expense until the related marketing had been carried out and completed.
-By aggressively “front” loading vendor allowance for marketing expenses.
- Without implicit nor explicit agreement with the vendors about the commitment to the marketing allowance; instead, it was more up to the vendors to decide when and how much to pay.
- AFRF departure: capitalized opening store exps. Cummulated effect of $2.1M in 1996. (Wall Street 1995)
- Unusual in increase in A/R: $400k in ’97 and $29M in ‘98
- $14.4M vendor allowance was recorded at year end – 50% of the account balance at year end (recall Health management and its booking of inventory $1.8M). No support docs nor payments for $11.3M, even 3 month after year end
- $16M (out of $22M total confirms sent) Non standard confirmations: ambiguous language including “the company had earned, accrued,
-1996, Ruttenberge family sold a large chunk of stocks for $49.6m on the second public offering while the financial statements continuously showed positive trends
- The financial statements analysis
- Cash flows were negative while profit was reported. Early 1999, liqutity problem arised, sold $200M of high-yield or Junk bonds in mid 1999.
- Justice Department:
Adam Gilburne: guilty to conspriracy to commit wire and securities fraud to inflate earning 96-99. He was alleged of drawing up a list of good and bad items to adjust income to meet analyst 's expectations. Imporperly recogmnzing unearned and fictitious recievales from its vendors
- SEC: 3 Financial Fraudent Schemes 1 Imporperly recogmnzing unearned and fictitious recievales from its vendors * GAAP: Revenue recognition when realized or realizable and earned (Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.)
A/R-vendor allowance XX
Revenue XX
Advertising Exp XX
A/P or Cash XX
the allowance not to be offsets against advertising expense until the related marketing had been carried out and completed.
-By aggressively “front” loading vendor allowance for marketing expenses.
- Without implicit nor explicit agreement with the vendors about the commitment to the marketing allowance; instead, it was more up to the vendors to decide when and how much to pay.
- AFRF departure: capitalized opening store exps. Cummulated effect of $2.1M in 1996. (Wall Street 1995)
- Unusual in increase in A/R: $400k in ’97 and $29M in ‘98
- $14.4M vendor allowance was recorded at year end – 50% of the account balance at year end (recall Health management and its booking of inventory $1.8M). No support docs nor payments for $11.3M, even 3 month after year end
- $16M (out of $22M total confirms sent) Non standard confirmations: ambiguous language including “the company had earned, accrued,
Cited: Former 'Just for Feet, Inc. ' Executive Pleads Guilty to Conspiracy to Commnit Wire, Securities Fraud. (2003, May 12). Retrieved from U.S. Department of Justice: www.usdoj.gov SEC Charges Deloitte & Touche and Two of Its Personnel for Failures in Their Audits of Just for Feet. (2005, April 26). Retrieved from U.S. Securities and Exchange Commission : www.sec.gov