1. List accounting practices that were used to fabricate the numbers in the financial statements.
The unrealistic sales targets and abusive management style created a pressure cooker that drove managers to cook the books or perish. And cook they did---booking shipments as sales, manipulating reserves and simply fabricating figures---to maintain the illusion of unbounded growth even after the industry was hit by a severe slump. They also booked returns as inventory, carried obsolete parts and scrap from the old year’s inventory on next year’s books, packaged approximately 6,100 disk drives that had been contaminated in order to inflate inventory, intentionally shipped the same goods several times to enlarge accounting …show more content…
They could not find the fraud earlier which made them should be secondarily responsible for the fault.
Independent accountants just serve for the company. However, when they realized something wrong with the figures and the transactions, they should tell the company administrators and auditors. Therefore, I think the independent accountants just took little responsibility on the fraudulent reports.
In this case, the CEO of MiniScribe Corporation obviously violated these rules. He forced managers to do exactly as what he said and made the honest managers leave company. The employees had to lie on financial statements to meet the requirement of the CEO. The CEO had too much freedom and authorization on company. Moreover, the audit committee of MiniScribe Corporation could not found the fraud earlier. The board of directors lost much because their own mistake. While, actually, the board of directors paid most in the case. Although the CEO had the mostly responsibility, he paid less than the board of directors but also the second. The independent accountants finally lost their jobs because of the bankruptcy and would also be punishment for the loss of professional ethics.
4. Based on the stock price behavior before and after the disclosure of fraud, comment on the importance of accurate financial statement in valuing a firm.
The accurate financial statements are very important in valuing a firm. If a company can honest to the