Investools

Martin M. Rogers

AC 4290 Accounting Case Analysis

Restating Earnings at INVEST00ls, Inc. (A)

September 21st, 2011

Introduction:

With this analysis, I will try to discuss INVESTools announcement of its restatement and its effect on the company. It is hope that the questions below will discuss INVESTools changes in strategy prior to the restatement, the company’s historical success, why the board members are concerned about the restatement, whether or not lost investor confidence is inevitable, and how investors should evaluate the business.

1. Describe the company’s strategy. Has it been successful?

Strategies changes included supplementing live workshops with telephone consultations with personal coaches that would help reinforce workshop concepts with customers. INVESTools established contact points in order to market future workshops and products to customers as well. Paying instructor’s commission on registrations for future workshops, subscriptions, and personal coaching seminars increased INVESTools graduates and website users. The combination of marketing relationships with Money in Training Financial and Success Magazine and cobranding relationships with Business Week and CNBC helped the company attract a wider pool of potential customers. Offering investment tools online also allowed the company to reach more customers also.

2. How much do investors rely on GAAP –based earning? Which revenue measure should investors rely on to evaluate the business – cash sales or GAAP –based revenue? Which earnings measure should investors rely on to evaluate the business – the amount reported internally or GAAP-based earnings?

Investors should rely on GAAP-based revenues when evaluating INVESTools’ business because the company’s use of cash sales revenues is the reason for the company having to issue a restatement in the first place. Also, GAAP-based revenues more accurately depict the value of the company. The cash sales revenue only account for when...