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Case 1.4

Case 1.4. Sunbeam: The Revenue Recognition Principle. Sunbeam Case Relevant Technical Knowledge. Revenue Recognition Principle

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Case 1.4

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  1. Case 1.4 Sunbeam: The Revenue Recognition Principle

  2. Sunbeam CaseRelevant Technical Knowledge Revenue Recognition Principle • Revenue must be both earned and realized before it is recognized. That is, the product must have been delivered or the services must have been provided to the customer. In addition, the amount of the sale needs to be fixed and determinable. And, there must be a belief that the cash will be collected from the customer in a timely manner.

  3. Sunbeam CaseRelevant Technical Knowledge AU Section 326 • Paragraph # 21 – “To be competent, evidence, regardless of its form, must be both valid and relevant.” • Paragraph #22 – “The amount and kinds of evidential matter required to support an informed opinion are matters for the auditor to determine in the exercise of his or her professional judgment.”

  4. Sunbeam CaseRelevant Technical Knowledge SARBOX Section 204 • the auditing firm must report all “critical accounting policies and practices” and “all alternative treatments of financial information within [GAAP] that have been discussed with management” as well as the “ramifications of the use of such alternative disclosures and treatments, and the treatment preferred” by the auditing firm.

  5. Sunbeam CaseRelevant Technical Knowledge SARBOX Section 301 • the “audit committee of an issuer shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer.” PCAOB AS#5 – Paragraph #69 • “ineffective oversight of the company's external financial reporting and internal control over financial reporting by the company’s audit committee” is an indicator of a material weakness

  6. Psychology Literature - How to Best Acquire Knowledge • Feature Repeated Case Experiences with Feedback; and • Teach Technical Concepts within Real-Life Contexts • Consider the following additional cases: • Enron: The Revenue Recognition Principle • Qwest: The Revenue Recognition Principle • WorldCom: The Revenue Recognition Principle

  7. Epilogue - Sunbeam • CEO Albert Dunlap and CFO Russell Kersh permanently barred from serving as officers of publicly traded companies • Albert Dunlap paid $18.5 million to settle lawsuits • Investigation revealed that Albert Dunlap had been previously involved in a similar accounting scandal

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