GAAP is not written in stone, and is subject to interpretation over many issues. If SBTK's accountants allowed them to book sales, then in their opinion they were sales according to GAAP.
Ewww how do you do it? With one foot already crammed down your throat, you insert the other foot? I'm frightened just watching!!
Listen up little fella, you might learn something...
Stupido Issue One:
While various aspects of GAAP are not written in stone, revenue recognition is written in solid granite. The detailed allegations regarding SBTK's scheme to manufacture good financials can be interpreted only one way under GAAP. FRAUD.
FASB Concept Statement No. 5 generally provides that revenue should not be recognized until they are (a) realized or realizable, and (b) earned. These conditions for revenue recognition ordinarily are met when assets or services are exchanged for cash or claims to cash, and when the entity has substantially performed the obligations which entitle it to the benefits represented by the revenue. Concepts Statement No. 5, 83. Generally, a transfer of risk must occur in order to effect an “exchange” for purposes of revenue recognition under GAAP. In addition, GAAP provides that profit is deemed to be realized when the collection of the sales price is reasonably assured. Accounting Principles Board (“APB”) Opinion No. 10, 12. Further, revenue which arises from circumstances involving uncertainty as to possible gains should not be recognized since to do so may result in gains being recognized on revenue prior to its realization. FASB Statement of Financial Accounting Standards (“SFAS”) No. 5, 12.
Sabratek's recognition and reporting of revenue on the above transactions violated GAAP as such “revenue” was not realized or realizable nor was Sabratek reasonably assured of collecting on the “sale” of the products at the time of delivery. The above “shipments,” which typically occurred at or near the end of the Company's fiscal quarters, were made for the purpose of allowing SBTK to manipulate Sabratek's reported operating results in a given fiscal quarter. SBTK knew or recklessly ignored that Sabratek's recognition and recognition of revenue on these shipments violated GAAP.
In furtherance of the scheme to overstate Sabratek's operating results, SBTK also improperly recorded revenue on de facto consignment sales promising its customers that they could return their shipments of Sabratek products and would not have to pay for those products if they were not sold to a bona fide purchaser or end-user. These consignment shipments should not have been recorded as revenues because an “exchange” for purposes of revenue recognition under GAAP was not met at the time of shipment. In addition, because the product was sold on a de facto consignment basis, Sabratek was not reasonably assured of collecting on any sale of the products at the time of delivery.
Stupido Issue two
<<If SBTK's accountants allowed them to book sales, then in their opinion they were sales according to GAAP>>
Ahh yea. Right.
Except if SBTK's accountants knew this activity was going on, they would have called it fraud and resigned immediately, or insisted SBTK stop manufacturing fraudulent numbers and forced them to restate their financials.
Obviously KPMG knew nothing of this fraud or they would be liable also.
OK bud, schools out - hurry on down to the ER and git that stuff extracted from yer throat. |
