Sunbeam Ethical Case Study

Document Type:Thesis

Subject Area:Accounting

Document 1

As a matter of fact, aggressive accounting and earnings management play an important role in the Sunbeam Case. One example of aggressive accounting in the Sunbeam Case is channel suffering, which is when a company ships products that are in abundance of a customer’s requirements towards the end of an accounting period to inflate revenues (Financier Worldwide Magazine, 2013). With this said, Sunbeam could convince their retailers to buy gas grills six months in advance at a discounted rate. Once the retailers purchased the merchandise, they were then shipped to a third-party warehouse until the customers requested them (Mintz & Morris, 2013). This resulted in Sunbeam recording $35 million in revenue, however, the auditors reverse the transaction to $29 million. When Sunbeam Corporation hired Al Dunlap, the board of directors allowed Dunlap to make factious numbers which increased Sunbeams’ stock prices.

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As an auditor, it is important to examine the tone at the top of the company as it forms the foundation for a culture that inspires trust and confidence between their employees and stakeholders (Epps, 2012). With this said, the auditors knew that the tone at the top of the company was failing as no one had complete oversight of what Dunlap was doing and it seemed that everyone was maximizing the benefits when Dunlop restored Sunbeam’s profitability (Mintz & Morris, 2014). The key factor that Andersen should have considered in addition to materiality in making the determination is the management’s decision. When the management of Sunbeam rejected the adjustments that Andersen suggested, it had an impact on the company’s financial statements as they were following Generally Accepted Accounting Principles instead of Generally Accepted Accounting Standards.

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