http://www.canada.com/edmontonjournal/news/business/story.html?id=437be4c2-ef54-4cd6-8f0b-9d4b6895bfac
Summary:
This is not a recent article. it is an article back in 2007. CV technologies had to restate their earnings to account for reported revenue that will not materialize. The financial reports for all of the 2006 and first quarter of fiscal 2007 had to be restated due to disappointing sales. The estimated sales at first, was $8.6 million, but the actual sales were $1.5 million to $2.5 million. The revenue for the third quarter had to be reduced 11 to 12 percent and the fourth quarter revenue had to be reduced by 6 to 8 percent. After this incident the company changed its reporting policy so revenue from products with a right of return will be deferred.
Connection:
The connection that I have made with this article is revenue recognition. CV Technologies had to restate their earnings because their earning reported don’t match the earning they had actually generated. CV technologies pretty much broke the three criteria of Revenue Recognition. Firstly, the revenue that they stated could not be recognized because it is not earned. Secondly, the amount could not be measured because the amount that they had stated is just an estimate. Thirdly, they aren’t sure that amount stated can be collected because it is just an estimate. CV Technologies stated its revenue before it is even generated; therefore, their financial statements are overstated.
Reflection:
CV Technologies should not have stated the estimated earnings in the first place because they broke the accounting rule in and they have to waste extra time restating all their financial statements. This caused unnecessary media for the company and caused the image of the company to look bad. I am glad that they decided to change their policy after this incident because it demonstrated that they learned their lesson. This would also do well for the company because they weren’t following the criteria of revenue recognition.
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I think CV Technologies deserved what they got for overstating their sales. If they weren't so greedy, they wouldn't have had to lower their revenue figures for the rest of the year. Due to what they did, their company reputation is now damaged and shareholder's will have less faith in investing in the company in the future. I think another connection to the article would be earnings management. I think it's the managements fault for making such a bad earning management decision. If CV Technologies hadn't made such a greedy decision, I think they would have been more financially successful.
ReplyDeleteSam Hui
Day 1 Period 2
I think that it was CV Technologies fault for overstating their revenue by at least $6.1 million which result them into redoing their whole financial report of all 2006 and first quarter of fiscal 2007. The right move that they did was to change the reporting policy to redeem themselves from getting a bad image from the public. It wasn’t right for them to estimate their revenue and actually use it because in reality they didn’t earn that much. They would need to recognize their revenue until they made the sales.
ReplyDeleteBy recording potential revenue that hasn't materialized yet, CB Technologies has failed to follow GAAP. The result of this leads to financial statements way different from what they should look like, along with very disappointed shareholders. Of course, GAAP isn't a law, so if CV Technologies is sued, I think that they would get away with it. I believe that the main issue lies in GAAP. Since GAAP isn't made a law, we keep seeing companies manipulating their financial statements to attract shareholders. Fortunately, CV Technologies has implemented a business policy that seems more practical. Hopefully, they'll stick to it.
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