Acct2300 Sunbeam Case Study

Joe Smoe

ACCT 2300

May 10, 2018

SunBeam Case

1. Explain how chainsaw Al used ‘cookie jar’ reserves to inflate Sunbeams profit?

In order to inflate Sunbeams profit Al overstated the expenses for a period, but he reserved the credit to understate expenses in an upcoming period. This will show extra profit once they understate expenses. That is why it is called the cookie jar because they can choose when they want to increase profit.

2. Can ‘bill and hold’ practice ever be considered sales that should be recorded in the period in which the goods are initially held?

It is possible for sales to be recorded before the goods are delivered. For this to be possible you would have to invoice the customer and at that time you would have to debit accounts receivable and credit unearned revenue.

3. Why didn’t Sunbeams board of directors catch on to the manipulation?

Sunbeam’s board of directors never knew what was going on because Al was the CEO and chairman of the board. Al was able to tell them that everything was going fine, and they probably believed him because the numbers were up. That is why the CEO should not be able to be a part of the board because the CEO is supposed to report to the board.

4. How should board make sure that it gets the information it needs to monitor management actions and accounting policies?

An easy solution that would allow the board to monitor what is going on in the company would be to have an internal control committee. This way they will be alerted if there is any wrong doing, and the internal control committee only reports to the board members. Even though Al is the chairman, other board members would be notified by the internal control committee in board meetings.

5. If you are a professional accountant who reports an ethical problem to your supervisor who does nothing, what more should you do?

My first thought would be to contact the human resources department so that they can make a record of the situation. My next step would be to contact members of the board so that they know what is going on. In this case since Al is the chairman I probably would contact the American Institute of Certified Public Accountants and let them know what is taking place within the company. Lastly, I would resign from the company because I wouldn’t want my name associated with them.

6. What problem can you identify with Arthurs work as Auditors?

The first thing I realized about ArthurAndersons work is that their internal auditor Deandra