Bristol Myers Squibb

Bristol-Myers Squibb’s Accounting Fraud

Although the practices of accounting continue to improve in regard to accuracy and reliability, there have still been recent instances of accounting fraud that has caused financial anguish for investors. Bristol-Myers Squibb was an example of a company using fraudulent accounting practices to mislead investors about the company’s sales performance. Bristol-Myers Squibb describes itself as “a global BioPharma company firmly focused on its mission to discover, develop, and deliver innovative medicines that help patients prevail over serious diseases” (A BioPharma Leader). The company was established in 1858 in Brooklyn, New York, and its corporate headquarters remain in New York City to this day.

Bristol-Myers Squibb led investors to believe that the company was right on track with their previously forecasted goals by using a fraudulent scheme called Channel Stuffing. The company would sell excessive amounts of their pharmaceutical products to their distributors at a discounted price while also “guaranteeing them a specified return on investment until they sold the products” (Commission Charges Two…). This allowed Bristol-Myers to inflate their sales enough to reach their internal and external sales goals. “As a result, Bristol-Myers improperly recognized $1.5 billion in revenue upon shipment to these wholesalers” (Commission Charges Two…). Once the distributors refused to hold anymore inventory, Schiff and Lane decided to “improperly create divestiture reserves and reversed portions of those reserves into income to further inflate earnings” (Commission Charges Two…). In the beginning of 2002, Bristol-Myers Squibb launched an internal investigation, where it was found that Channel Stuffing had taken place and they warned investors that their “past earnings projections were dramatically off track”( SEC v. Frederick Schiff and Richard Lane). Bristol Myer’s stock price plunged as a result, and in 2003 they released a formal...