Mr Richards Essay

1174 words - 5 pages

1.How serious were Stephen Richard’s actions? Why?

Stephen Richard's actions in this can be viewed as extremely serious because he used his high position of power in sales to coerce clients into boosting sales earnings by quarter. This led to "overly aggressive accounting practices" to boost their reported earnings. Evidence supported that the managerial use of discretion to greatly influence reported earnings was not only used by Richards', but it had become a company-wide practice. This naturally drew the attention of the DOJ and the SEC as they investigated the potential wrongdoings. Investigators found enough evidence to prove that the former CFO illegally facilitated the backdating ...view middle of the document...

The reason of that practice was to meet or beat per-share earnings estimates of Wall Street analysts, a key to keeping a company's stock price rising, but CA made a big mistake when failed to disclose that those reported results included prematurely recognized revenue and thus, did not comply with GAAP.
The most extreme case that occurred in the second quarter of 2000 highlights clearly how the misreporting affected considerably the company’s revenue and earnings, when the company reported $557,7 million in revenues beyond the $1.047 billion that it could properly claim and that made the company report 60 cents (0.60) in earnings per share, beating the consensus Wall Street forecast of 59 cents (0.59) while without improperly recognized revenue, earnings would have been a mere 5 cents (0.05) per share and thus, the stock price might have fallen instead of increased as announced.
2. my opinion on Richard's actions wouldn't really change because he violated the rules of accounting and reporting in numerous ways to achieve the financial results that CA did, under false pretenses. This also brings up morale and ethical concerns that I didn't get into, because I could go on forever! I can only go on the facts of this case and Richard's actions. If the high financial results were realized through honest, legal accounting practices, that would be highly commendable. There really is no such thing as "flexible and legit" accounting practices, but that's just my opinion. The SEC has strict guidelines for a reason, or else every business would make up their own rationale for how they report earnings or close quarters and it would make it difficult to audit and justify any faults with too much flexibility.

4. The motivation to manage earnings comes in part from management’s responsibility to direct the entity’s operations in a way that achieves targeted results. The motivation also comes from pressures on management from sources both outside and inside the entity. External pressures come principally from the capital markets. Many observers believe that Wall Street’s expectations significantly affect both appropriate and inappropriate management behaviors. Members of top management are especially subject to pressures to demonstrate that shareholder value has grown as a consequence of their leadership. Boards of directors are subject to pressures from stakeholders to enhance the value of the entity, and they in turn create internal pressures on management to meet financial and other goals and ensure the...

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