4<\/p>\n
1<\/p>\n
Sunbeam Corporation<\/p>\n
Catherine Rosa<\/p>\n
Rasmussen College<\/p>\n
Financial Investigation<\/p>\n
09.04\/2021<\/p>\n
Sunbeam Corporation<\/p>\n
Sunbeam Corporation is a manufacturer and markets household appliances like blankets, kitchen appliances, and other accessories. It has a vast market in the U.S.A. and Canada. The company has been in business for an extensive period, but its dominance was affected in the late 1990s, and also the firm was caught up in lawsuits due to its fraudulent undertakings involving the management. In 2002, Sunbeam emerged from bankruptcy as American Household, Inc. after undergoing vigorous lawsuits that saw the company and managers been penalized heavily.<\/p>\n
Issue<\/p>\n
Sunbeam Corporation was involved in different types of fraudulent activities, and the first one was the violation of the revenue recognition principle (Agostini and Favero, 2017). Sunbeam improperly recognized revenue before the conclusion of the earning procedure. One indicator is that the rewards and risks of ownership of research have not been completely transferred to the purchaser, predominantly in the bill and hold dealings. Secondly, they committed accounting fraud in that 2 million of its reported revenue was false, thus cooked the figures to entice the public.<\/p>\n
Facts<\/p>\n
From the last quarter of 1996 until 1998, Sunbeam Corporation’s high-ranking leadership formed the deception of the successful reorganization of Sunbeam to puff up its share price and thus enhance its worth as an acquirement target. The corporation sold goods to clients but held on to the consignments with an arrangement to convey the merchandise later. Precisely, senior administration established $35 million in inappropriate restructuring reserves and other “cookie jar” reserves as part of the annual1996 reformation that was overturned into revenue the subsequent year (Agostini and Favero, 2017). Sunbeam had also contracted to wage its promotion agency around $2.7 million in charges and possible bonus to pay the services rendered from 1996 to 1997. Nevertheless, Sunbeam administration meaningfully or irresponsibly documented the complete quantity as a 1996 expenditure, including $2.3 million associated with services to be executed in 1997.<\/p>\n
Weaknesses<\/p>\n
Sunbeam had weak internal controls in that there existed a lack of management oversight and review in that the management team cooked the figures to make the company successful to the public (Antonelli et al., 2021). There was an influence or no autonomy in the internal audit department who were accorded the responsibility to ensure that fraud and errors are detected early as possible and reported. The influence would occur when the management did not take action of the recommendations made by the internal audit department or even ignored and carried activities as they wanted. The audit report provided was qualified, but it should have been unqualified in a real sense showing the report cannot be relied upon, and the audit unit is not independent.<\/p>\n
Outcome<\/p>\n
The court barred the involved management from taking up positions in publicly traded businesses. Anderson was penalized for paying the shareholders of Sunbeam a sum of $110 million for relying on the audit report they provided. The court fined both the director and the chief financial officer unspecified amounts (Norris, 2001).<\/p>\n
Prevention\/Detection<\/p>\n
The fraudulent activities of Sunbeam Corporation would have been prevented by involving the board of directors who have experience in accounting and are non-executive. Thus they can be partisan in giving the true nature of the company financial health (Antonelli et al., 2021). The fraudulent activities would have been detected by carrying out investigations into the dealings between the company and the consumers and being aware of any red flags regarding the consignments.<\/p>\n
Financial Impact<\/p>\n
The actual losses that Sunbeam could have recorded due to the fraudulent activities would be nearly $5 million. Initially, the $7 million income margin, the variance amid the $11 million sale charges, and the $4 million carrying value of the stock minus the $3 million reserves left $4 million in cooked profits. Secondly, eliminating the inventory from Sunbeam’s accounts imposed the adjustment of stock ledgers that added another $900,000 to the company\u2019s income statement (Rodriguez, 2002).<\/p>\n
Ethical Issues<\/p>\n
The ethical issues of the people involved are that they lacked integrity and abuse of leadership authority by falsifying the financial statement in a manner as to showcase the company has been successful so that the stock prices would increase (Francis, 2014). The company was impacted because its reputation was poorly affected, stock prices went down, and its management team was penalized and banished from holding positions. The company, due to that, went bankrupt in 2001.<\/p>\n
In conclusion, Sunbeam corporation’s fraudulent activities caused the firm big time, and thus, other organizations should ensure that their internal controls are working appropriately. If the company is not doing well, it will need to find other legal strategies to improve.<\/p>\n
References<\/p>\n
Agostini, M., & Favero, G. (2017). Accounting fraud, business failure and creative auditing: A microanalysis of the strange case of the Sunbeam Corporation. Accounting History, 22(4), 472\u2013487. https:\/\/doi.org\/10.1177\/1032373217718871<\/p>\n
Antonelli, V., Coronella, S., Cordery, C., & Verona, R. (2021). Fraud and incompetence: Accounting in the Papal States (1831\u20131859). Accounting History, 103237322110036. https:\/\/doi.org\/10.1177\/10323732211003685<\/p>\n
Francis, A. (2014, July 3). Case Study on Business Ethics: Al Dunlap at Sunbeam. M.B.A. Knowledge Base. https:\/\/www.mbaknol.com\/business-ethics\/case-study-on-business-ethics-al-dunlap-at-sunbeam\/<\/p>\n
Norris, F. (2001, May 16). S.E.C. Accuses Former Sunbeam Official of Fraud. The New York Times. https:\/\/www.nytimes.com\/2001\/05\/16\/business\/sec-accuses-former-sunbeam-official-of-fraud.html<\/p>\n
Rodriguez, M. A. (2002). The Numbers Game: Manipulation of Financial Reporting by Corporations and Their Executives.\u00a0U. Miami Bus. L. REv.,\u00a010, 451. https:\/\/repository.law.miami.edu\/cgi\/vi ewcontent.cgi?article=1140&context=umblr<\/p>\n","protected":false},"excerpt":{"rendered":"
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