Acct499 Homework Week7

Sunbeam Corporation Fraud

Alvin Smith

ACCT499

March 22, 2015

Dr. Pete McDanel

Sunbeam Corporation Fraud

Sunbeam charged with fraudulent misrepresent of operating results connected to their “turnaround”, which has cost investors billions of dollars in losses (Mintz & Morris, 2014). This came about during 1996 when Sunbeam’s board of directors hired Al Dunlap, who had a reputation of turning companies around by cutting them to the bone during a restructuring period and promising a rapid turnaround to help companies re-establish themselves within their market place (Mintz & Morris, 2014). One of the way Mr. Dunlap achieved this was via a cookie-jar reserve along with channeling certain inventory to retailers. This in itself is not illegal and is considered aggressive accounting practices, but in doing so requires aggressive management of this account through extremely well established rules and accounting for every dollar within that cookie-jar fund.

To understand what Sunbeam was doing one must understand what an aggressive accounting is, known for forceful and intentional choice and application of accounting principles done in an effort to achieve results (Finance Lib, 2015). But this alone cannot drive a company to where Sunbeam would find itself, they also established an aggressive earnings management by inflating and deflating the company revenues and profits during certain periods which effected the earnings per share (EPS) figures (Mintz & Morris, 2014) the drove the investors losses. Like most companies, Sunbeams number one goal is to show profits for each accounting period, along with showing potential investors and creditors that they are a worthy investment. Even thou earning management and aggressive accounting practices are not explicitly prohibited, even with a slight deviation from the rules is considered ethical practice regardless of who might be affected (Akers, Giacomino, & Bellovary, 2007). While the hiring of Mr. Dunlap...