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Category: Business and Industry

Date Submitted: 07/26/2010 07:03 PM

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Overstock.com Must Restate

In October of 2008 Overstock.com announced it would be restating some of its financial statement due to an accounting error involving their accounts receivables. Although Overstock.com has had problems since 2008 with amortization concerning stock, this paper will concentrate on the small costumer refunds from 2003 to 2008 that started to add up and made quite a large change in revenue. Within this short paper we will look at how this restatement effects financial statements, the accounting principles involved and the effect it has on stockholders.

A reduction in revenue of about 12.9 million dollars is the effect of this five and a half year period in which the poor implementation of Oracle enterprising planning system had taken place. Small transactions of refunded merchandise and delivery charges were not automatically recorded because of codes that were not in place for the reasoning of the return. This error in financial statements (according to or text) is a misuse of facts that effected the balance sheet. The misclassification of these seemingly small transactions caused account receivable to project higher earnings in which restatement shows a drop (for most years between and including 2003 to 2008) in revenue reported, gross profit, operating loss, loss from continuing operations, and net loss per share.

The effect of net loss per share for stockholders is minor, as long as you do not own a large percentage of stock, about $45,000 in total. The larger effect will be trust or lack thereof. Patrick M. Byrne took full responsibility for the accounting error but, Overstock’s lack of internal controls of it financial statements will affect the stockholder’s decisions to hang on or sell this stock. Although Overstock.com boosted an industry average growth of 17% the damage may have already been done. In more recent years Overstock.com has had to restate its financial statements again. If the first time didn’t scare investors away,...