Dodgy Accounting Case Study

4. Which of the Dodgy Accounting’s Greatest Hits did MiniScribe do? Provide example.
(1) Recording revenue before it is earned
In 1986, MiniScribe recognized certain revenues in advance which should have been recorded in 1987. Late in 1987, the company set up three just-in-time warehouses to store goods, which should not be recognized as sales until the customers received and accepted the inventory. In 1988, MiniScribe again used same method to increase shipments to boost revenues. However, MiniScribe violated accounting principle on revenue reorganization by recording shipments into the JIT house as sales.
(2) Inventing fictitious revenue
MiniScribe seems quite creative in inventing false revenue. In 1985, it intentionally overstated its

Wiles restructured the board by a major of his affiliates and previous employees, reorganized and reassigned senior management personnel frequently, which sacrificed long-term commitments for short-term results and built unstable environment for managers to evaluate business risks and potential impact well. Due to the frequent change in personnel, Board Members and Management Level didn’t have enough time to gain complete agreement regarding MiniScribe’ business risk. Besides, the articles shows that MiniScribe did not have a full-time and internal general counsel. They only employed an outside counsel which work on an episodic basis. Therefore, they often had to function without a complete understanding of the context. Furthermore, from the materials, there was no evidence showing that special department or personnel had the duty to manage and disclose business risks and their potential

• The audit committee should follow certain criterion to choose internal auditors and external auditors, and also supervise their activities and interaction thus ensuring the function of audit both internal and external.
• The audit committee should respect the independent opinions from external auditors. Also, there should be certain amount of CPA in the Audit Committee of the Board.
(4) Are we encouraging responsible behavior among employees?
Under the pressure brought by Mr. Wiles’ arbitrary management style, senior managers were just busy with making numbers, but not feasible plans. Such unreasonable management style resulted in the emergence of irresponsible behaviors. Besides, The Company emphasizes “make the number” instead of “make the accountable number”, which probably resulted fraudulent activities. The History department of MiniScribe’s accounting and public reporting function was directed not to question the number received from the Control, also called as the controllers for the company’s operating and manufacturing division. It’s so ironic that directors discouraged responsible employees’ responsible behaviors.