Sunbeam: A Model of Accounting Misconduct, Research Paper Example

Sunbeam Corporation was plagued with accounting difficulties from the late 90s to the early 2000s. Misconduct involved some basic accounting principles. The principles involve the reporting of revenues and reserves (Cherry, 2004). Ultimately, everyone involved seemed to lose out, and the federal government had to step in to approximate some justice (Securities and Exchange Commission (SEC), 2001).

What had happened was that Sunbeam overreported revenues. To finance the acquisition of Coleman, the camping equipment manufacturer, Sunbeam made the fiscal health of the company seem more robust (Cherry, 2004). In essence, it fudged the numbers to get loans to buy Coleman. Basic accounting equations make it so that reserves were exaggerated (Cherry, 2004). This made loaning the company money to buy Coleman more attractive to lenders. Shareholder’s lost most on the deal (Cherry, 2004). The value of Sunbeam stock was falsely high, and the acquisition increased the value of Coleman stock (Cherry, 2004).

Furthermore, Sunbeam had overestimated Coleman’s manufacture rate which made for an extremely unbalanced transaction overall. Sunbeam was barrowing money against collateral that was not worth what they said it was, and they did it to purchase a company that was not worth what they thought it was. Lenders felt left out in the cold and initiated proceedings with the U.S (SEC, 2001) The SEC issued an order demanding Sunbeam declare bankruptcy to balance the outstanding false values and fined CEOs over $350 million while still requiring them to inject enough personal wealth to offset the losses incurred by lenders and shareholders (SEC, 2001).

Sunbeam Corporation had been overwhelmed with accounting difficulties from the late 90s to the early 2000s. Sunbeam’s accounting misconduct involved some basic the reporting of revenues and reserves. This study underscores the need for ethical accounting practices and oversight.

References

Cherry, A. A. (2004). Sunbeam Corporation Case: “Bill and Hold Sales, Channel Stuffing, and Lots of Returns: The Effects on the Revenue, Inventories, and Receivables”, in Cheryl R. Lehman, Tony Tinker, Barbara Merino, and Marilyn Neimark (ed.) Re-Inventing Realities (Advances in Public Interest Accounting, Volume 10), Emerald Group Publishing Limited: 63-81.

Securities and Exchange Commission. (2001). Accounting and Auditing Enforcement, Release No. 1393. Retrieved from http://www.sec.gov/litigation/admin/33-7976.htm