Whats Wevenue

The fraudulent accounting that transpired at California Micro Devices Corp (Cal Micro) shows what happens when a company has accounting practices that are not ethically and they lack internal controls and when the auditors, Coopers & Lybrand (Coopers), are not performing their duties according to the Statement of Ethical Professional Practice standards set forth by the Institute of Management Accounts (IMA).

The problems with the accounting practices at Cal Micro began in the late eights when Price Waterhouse was their auditors and they noted that Cal Micro had internal controls that were very weak. Additionally it was noted that Cal Micro needed to revise a quarterly earnings statement and should upgrade their finance team which included replacing the current CFO. The only recommendation that Cal Micro completed was to change the title of the CFO and then they elected to not continue to use Price Waterhouse services.

In 1990 Cal Micro selected Coopers to be their auditors. A Cal Micro chairman and 45.7% owner sat on the Cal Micro audit committee and Cal Micro currently did not have a revenue-recognition policy. By 1993 the lack of policy lead to revenues being booked on products sold but not shipped which lead to future contradicting testimony between Coopers and Cal Micro about the practice being acceptable. As time went on Cal Micro proceeded to have a looser definition of sales such as booking revenue for products shipped before customers even wanted them, sales not reversed for returned goods and paying distributors handling fees to accept products with unlimited rights of return. These practices lead to 70% of quarterly revenue being “fake” in 1994 and prompted a write-off of half of their accounts receivable.

When Coopers audited Cal Micro instead of veteran auditors mostly junior staffers with as little as six months experience handled the audit. The write-off, which most auditing experts as well as the SEC state should have been the starting...