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Free Sample In Account Fraud Case Study

INTRODUCTION ABOUT SUNBEAM ACCOUNTING

This present report is going to present a comprehensive analysis of the case “Sunbeam Corporation: A Forensic Analysis”. As like most of the organization Sunbeam was also focused towards maximizing its shareholders value while earning profits but even after a good performance of company, Sunbeam was not able to increase the shareholders wealth (Byrne, 1999).This report includes the assessment of different issues regarding wrong decision makings and use of unethical accounting techniques. The report will assess the decisions made by the managers regarding performance of the company and provide recommendations on the basis of learning about financial administration and assist management in appropriate decision-making.

CASE BACKGROUND

After being formulated in 1897, Sunbeam performed extremely well till the high inflation of 1980s. In 1988 the company bankrupted due to high economic depression. In 1990 Michael Price, Michael Steinhardt and Paul Kazarian acquired the company and made it public as Sunbeam-Oster in 1992. During the period of 1990 to 1996 the company’s share prices where highly volatile and company was surviving to remain in competition. A sudden change was seen in the share prices of Sunbeam Corporation when it was announced that Albert J. Dunlap joining the company as CEO in July, 1996 (Byrne, 1999). He was known as role the model for managers and hero of the American investors. With the announcement that Chainsaw Al is joining Sunbeam the stock of Sunbeam was raised by nearly 60% which was the largest one day jump in the history of New York Stock Exchange (Byrne, 2002).

Suddenly the company became major player of the industry with dramatic change in its stock prices, sales and net income. All the financial results were higher than the analyst expectations. One side the Dunlap was giving unexpected positive results to the company and on another side he was making some major changes such as eliminating 87% of the company's products, cutting 50% of employees and closing 37 of 61 warehouses, 18 of 26 factories and 39 of 53 facilities. The logic behind this dramatic boost in performance was identified in the next year and Dunlap and Sunbeam were being sued for violating the SEC Act of 1934 for misguiding the material information in the business operations.

ANALYSIS OF THE CASE

It is must for the public limited companies to share true information with their investors so that that can make effective investment decisions. For doing so a public company has to issue its financial reports on annual basis so that different stakeholders can identify the performance of the company. After the joining of Dunlap, Sunbeam Corporation not only became the industry leader but also its financial figures were boosting (Fastenberg, 2010). But even after this improved performance of the company there was no big change in the wealth of shareholders. The bill-and-hold strategy of Dunlap became a major issue of concern after identifying that this strategy was the key force behind this financial boost. This strategy is commonly used when the management is focused towards meeting certain conditions for a transfer of ownership occur. In this form of sales arrangement the seller dose not ship the products until a later date even after billing a customer for it (Karpoff and Martin, 2008). This setting makes a significant impact on revenue of the company as the immediate sales start boosting.

The application of bill-and-hold strategy boosted the revenue of Sunbeam Corporation for a short period. Several other ways were used by Al for achieving the short term targets. The bad financial condition of the company was disguised in financial results through the use of earning management techniques. The cookie jar accounting was used by the Dunlap for increasing the expenses through fake reserves (Twomey, 2010). Thus, the use of such accounting technique was the major reason why shareholders wealth did not increase even after the record performance of the company. So, basically there is no doubt that Dunlap was boosting the financial performance of company but at the same time he was misguiding the investors. On the other hand he was also not increasing their wealth.

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