Logitech inventory fraud pdf PDF

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Case Study for learning the topic on accounting....

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WhatcouldaLogitechstaff WhatcouldaLogitechstaffacco acco accountanthavedoneifhe/sheknew untanthavedoneifhe/sheknew untanthavedoneifhe/sheknewth th thattheCFOand attheCFOand controllerfaile controllerfailedtowritedow dtowritedow dtowritedownth nth nthediscontinuedRevuepartsin ediscontinuedRevuepartsin ediscontinuedRevuepartsinventory? ventory?  Inthefourthquarterof2010,LogitechInternationalreleasedtheRevue,aTVset‐topboxdesigned tointegratecable/satelliteTVwithinternetcontent.TheRevueGooglesearchbarwouldbeableto findanydesiredcontentfromanyproviderandprojectthatcontenttotheTVscreen. TheRevuewasmanufacturedbycontractmanufacturers,notLogitechitself.Inthearrangement withthecontractmanufacturers,Logitechauthorizedthemanufacturerstopurchaseabout$11 millionofpartsbeforeproductionoftheRevuebegan.Logitechwasgearingupforhighsalesduring the2010holidayseason. Duringthatholidayseason,salesofRevueweremuchlessthanLogitechanticipated.Inthefourth quarterof2010,165,000Revuesweresold,farlessthanthe350,000unitsLogitechexpectedtosell. TheRevue’shighprice,theblockingofcontentfromHulu,CBS,andABC,andnumeroussoftware bugsdoomedtheRevuetobediscontinuedlessthanoneyearafteritsarrival.Logitechhadmillions ofdollarsinvestedinexcessinventoryofRevuecomponentparts. Despiteknowingthatthecomponentpartsininventorywouldnotbeusedinmanufacturingother Logitechpartsandthemarketvalueofthosecomponentswasminimal,thelower‐of‐cost‐or‐market inventorywrite‐downthatLogitechdidmakefellfarshortoftheactualdeclineinmarketvalue. In2016,theU.S.SecuritiesandExchangeCommission(SEC)allegedthatsomeofLogitech’s executivesandaccountingstaffcommittedaccountingfraud.TheSECassertedthattheimproper inventoryaccountingcontributedtoanoverstatementofLogitech’soperatingincomein2011of morethan27%,or$30.7million.Logitechpaidafineof$7.5milliontosettlewiththeSECoverthis improperinventoryaccountingandtwootheraccountingissues.IndividualsfromLogitechincluding theformerCFOpaidfinesof$25,000‐$50,000. Questions ThereisnoindicationthatLogitechstaffaccountantsknewoftheimproperinventoryaccounting during2010–2011.However,assumethatoneLogitechstaffaccountantdidindeedknowofthe issueandanswerthefollowingquestions. 1. Whatstepsshouldthestaffaccountanthavetakenonceawareoftheinventoryissue? 2. Whymightthestaffaccountanthaveremainedsilentevenifawareoftheinventoryissue? 3. WhatmighthavehappenedtothestaffaccountantiftheSEChaddiscoveredthatthestaff accountantknewoftheinventoryissueatthetimebutremainedsilent?   

Source:WendyTietz,PhD,CPA,CMA,AccountingintheHeadlines.com ThisworkislicensedunderaCreativeCommonsAttribution‐NonCommercial3.0UnportedLicense....