Conservative Recognition or Cookie Jar Reserves

In: Business and Management

Submitted By inna59
Words 1598
Pages 7

Summary: O’Brian Software is a family software firm started by Amelia O’Brian. She started the company on a very small scale many years ago, but it has grown tremendously over time. The company went public and she now holds the position of chief executive officer at the company, while managing the majority of the business operations herself. Nick, who is Amelia’s nephew and a recent graduate with an accounting degree, began working for Amelia’s company. Nick was inducted as an auditor at junior level for the company and has been working only for a few months now. Amelia O’Brian has been facing issues because she does not have a sufficient understanding of the accounting procedures used in her company and her involvement with the company’s accounting function is very limited. Overall, the company has exhibited qualities of honesty and integrity in all of its functions. Though the company is owned and managed by the O’Brian family, all the important decisions are finalized only by proper discussion and final approval of the board of directors audit committee. All financial activities and transactions in the company are run by its CFO, Lee Marchetti. He is recognized as a trustworthy executive who ensures tight internal checks and controls on company’s finances.
Current situation: In the process of reviewing the company’s financial statements, Nick recognized some issues with software revenue recognition. He had a feeling that there was a possibility that the company was creating “cookie jar” reserves, which were aimed to inflate its earnings for times that were not so good. This situation was even more problematic because the company was planning to launch its new software in a short while. Nick was responsible for the auditing function and he addressed his concerns to Lee Marchetti. Lee…...

Similar Documents


...Cookie It was late, nine oclock late, the alarm on the end table blaring. Ming Long is late for work. As he struggles to get out of the door by nine fourty-five his boss calls. He does not pick up. He hops in his car and hurries to work. As he arrives at work Lisa greets him at the front desk. “Hey Ming, you’re late, that’s odd” she says with a weird grin “Hello, Lisa” he yells as he runs past As Ming is strolling down the hallway he feels something that is a little odd. He arrives at his office, papers stacked up to the ceiling. He got to work sorting as soon as he walked in. In the middle of his sorting process the boss walks in. “Good morning Ming.” He says happily “Hello, Lary” Ming says anxiously Ming still half asleep starts his lunch break, 15 minutes in Lary comes over, with no conversation subject in mind Ming says “Hello.” “Hi.” Says Lary That was the whole conversation, it was pretty off because Lary usually talks Mings ear off. Something must be wrong with him, he wasn’t even mad about Ming coming in late. As Ming walks curiously back to work he sees a new person, dressed in a nice suit with white pin stripes, slicked back black hair, dark red tie, and brand new dress shoes, or at least he thought they were new. Ming walks back to his office and sits because he is already caught up with his work. Lary comes walking over with this suspicious person and introduces him to me. “Ming, this is Chris, Chris this is Ming.” Lary......

Words: 403 - Pages: 2

The Bell Jar

...Joelle Silverman Professor Yoder WR 150 Paper 2 The Bell Jar: What Causes Mental Illness Sylvia Plath’s semi-autobiographical novel, The Bell Jar chronicles the protagonist Esther Greenwood’s decline into mental illness.Throughout the novel, Esther becomes increasingly depressed and suicidal, but it is never explicitly stated what is the actual factor that is causing her such torment. Although the focus of the entire novel is Esther’s psychological deterioration, the question of what it is exactly that causes a person to go mad is constantly posed. Realistically, the mind is complex beyond our understanding, and that of each person’s differs significantly, but there must be a common element that triggers depression. Esther’s circumstance exemplifies the notion that a lack of identity is detrimental to a human being’s mental health. Despite the fact that the precise cause of her depression is never stated, when examined, it is clear that Esther’s anguish roots from the fact that she is unable to find her place in society. Because she is unsure of the type of person she is and therefore the role she fits into, Esther does not have the ability to feel comfortable in the world, and because of this, is miserable being a part of it. Esther is first seen questioning her role in society when she is in New York. During this time, she is split between two types of friends. There is Doreen, who is dangerous and outgoing, and there is Betsy, who...

Words: 2056 - Pages: 9


...           Margaret Thatcher and the Conservatives  In 1975, Margaret Thatcher became leader of the Conservative Party and began to steer it towards what many have dubbed ÔThatcherismÕ. Margaret Thatcher believed in radical change, individuality, and a strong Government that enforces the law, rather than interfering in the economy. She was also opposed to the welfare state. In many ways, her ideology was broadly similar to classical liberalism, and many theorists see her ideology as neo-liberalism. Under her rule, the Conservatives were no longer truly conservative, as conservatives are usually opposed to too much individualism and liberty, and definitely do not want radical change. However, in terms of morality they remained staunchly conservative, believing strongly in the family and in law and order. It can be said then that the Conservative Party had become economically liberal but morally conservative.  The Modern Conservative Party  This Classical liberal ideology is still prevalent in todayÕs Conservative Party. Consecutive leaders after Thatcher have all stayed relatively true to her reforms of the party and its ideology, believing in economic classical liberalism. However, in recent times they have struggled to get their message across as supposedly they are liberals, and yet are often against homosexuality, drugs and immigration-ideas which are much more right wing and against the very principles of Liberalism. This has led to a decline in their support, as......

Words: 1689 - Pages: 7

Cookie Jar Reserves

...CONSERVATIVE RECOGNITION OR COOKIE JAR RESERVES Robin Turner Summary Two months after graduating from college Nick O'Brien started to work in the accounting department at his aunt's software company. While going over some financial statements Nick notices what he believes are revenue recognition issues. Since Nick believes that Lee Marchetti the Chief Financial Officer (CFO) of O'Brien Software is an honest man, he decides to have a discussion with him about what he believes are revenue recognition issues. Mr. Marchetti explains to Nick that accounting is not an exact science and that it involves a lot of judgment calls and that O'Brien Software's "deferrals and estimates are well documented and in accordance with the Securities and Exchange Commission (SEC) rules" (Conservative Recognition or Cookie Jar Reserves, Carpenter p. 3). After speaking with Mr. Marchetti, Nick decided to still speak with his aunt Amelia about his concerns. Amelia expressed to Nick that she was not very good when it came to accounting matters but she was educated when it came to recognizing revenue and that she believed being conservative was better than overstating. However, she asked Nick if he thought she should mention what he found to the audit committee. Issues/Questions One question that should be addressed surrounds why the CEO Amelia is not aware of certain financial aspects of her business. The Sarbanes-Oxley Act requires the chief executive officer (CEO) and the chief......

Words: 1271 - Pages: 6

Conservative Recognition or Cookie Jar Reserves

...Conservative Recognition or Cookie Jar Reserves? A Case Study Analysis July 5, 2013 Case Summary: Nick O’Brian has just finished his college degree and has started working for his aunt’s software company, O’Brian Software. Nick was hired as a junior auditor and has only been on the job for a couple of months. His aunt Amelia started the company as a small firm many years ago and finally went public after the company had grown tremendously. She holds the CEO position and runs the bulk of the business operations. However, Amelia O’Brian does not have a sufficient understanding of the company’s accounting procedures and therefore is not involved in the company’s accounting branch. In general the company seems to function with an air of honesty and integrity. Although the company is family owned, all of the business decisions are made with the consent of the audit committee of the board of directors. Furthermore, Lee Marchetti, the company’s CFO keeps a tight eye on all the financial activity of the company and is recognized as being a trustworthy individual who can ensure that the company’s controls are watertight. The situation is like this: While reviewing some of the company’s software revenue recognition data Nick got the feeling that the estimates were too conservative based on what the company was actually bringing in. He felt that it was possible that the company was creating “cookie jar” reserves to inflate earnings when times weren’t so good. This was......

Words: 1786 - Pages: 8

Cookie Jar Reserves

...Cookie Jar Reserves and Conservative Accounting ACCT 495 Professor Jastrzebski Fall 2013 Cookie Jar Reserves and Conservative Accounting SUMMARY O'Brian Software, a multimillion dollar software company, provides custom software systems, maintenance, support and training. Nick, a recent college graduate, just began working for the family run software company. After being hired to the firm's accounting department, Nick began to suspect unintentional and misleading revenue recognition . Nick believes his Aunt Amelia, founder and CEO, is an honest business woman and that her chosen CFO, Lee Marchetti, is also an honest man. Nick also knows that the financial statements have been reviewed and approved by the internal and external auditors and the firm's internal controls are effective. Despite these facts, Nick believes the firm has been smoothing earnings and creating inflated reserves. Most firms are usually charged with inflating earnings instead of under reporting, but both are equally illegal and unethical. After approaching Lee Marchetti with his concerns, Nick has informed his aunt, who has little accounting knowledge, of his suspected issues. Nick and Aunt Amelia are now faced with the decision as to whether or not the audit committee should be made aware of these concerns. ISSUES There are three issues at play regarding proper accounting and ethical business practices. The first issue is whether or not......

Words: 1456 - Pages: 6

Case 1 Conservative Recognition or Cookie Jar Reserves

...Case 1: Conservative Recognition or Cookie Jar Reserves SUMMARY OF THE FACTS Parties Involved: Aunt Amelia – Founder of O’Brian Software, Nick’s aunt and inexperienced in accounting. Nick O’Brian – Junior Internal Auditor, recently college graduate, nephew of the Lee Marchetti – Chief Financial Officer of O’Brian Software. After recently graduating college two months prior, Nick O’Brian is hired as a Junior Internal Auditor for his Aunt Amelia’s company, O’Brian Software. O’Brian Software has been in operations for five years and is a multi-million dollar publicly traded company that provides both software and consulting services to its clients. Although this is Nick’s first position at the company, he’s been involved since the very beginning of this family venture, since family members owned the majority of the stock. Realizing “her specialty is software, not accounting “, Aunt Amelia hires Lee Machete to be Chief Financial Officer (CFO) of O’Brian Software after the firm’s initial public offering (IPO) three years ago. Nick notices a significant amount of unearned revenue the balance sheet and wonders if O’Brian Software is being overly conservative in estimating the amount of deferred income. After having a difficult understanding the firm’s methodology for revenue recognition, Nick decides to talk to Marchetti. In the meeting with Marchetti, Nick states what worries him. “Overly conservative reporting could leave the impression we’re trying to......

Words: 1866 - Pages: 8

Cookies Jar

...started as a small family firm and then went public. Going over financial statements and reviewing the company’s software revenue data, Nick noticed that revenue estimates were too conservative compare to the actual company revenues. He considered a possible case of reserves to inflate earnings in slow earning periods. This could mislead investors and create a negative financial reputation situation that would not benefit the company’s newest software launch “BrainWave”. Nick discuss what he believes are revenue recognition issues with Marchetti, the company’s CFO in control of all the financial activity of the company. Marchetti explains to Nick that O'Brien Software's "deferrals and estimates are well documented and in accordance with the Securities and Exchange Commission rules. After speaking with Marchetti, Nick spoke with his aunt Amelia about his concerns. Aunt Amelia not knowing enough about the financial situation or accounting in general, asked Nick if she should mention the issue to the audit committee. Aunt Amelia now needs to make the decision to whether or not report the revenue recognition concerns the audit committee. Issues One of the issues is the concern if the company is using aggressive conservative revenue recognition to build reserves to use in future periods when earnings will decrease. This method is illegal because it would not provide a realistic financial statement to investors. One other issue is the......

Words: 948 - Pages: 4

Conservative Recognition

...O’Brian Software. Nick is going over the financial statements when he recognizes some questionable revenue recognition issues. Nick proceeds to address his concerns with the chief financial officer of the company, Lee Marchetti. Lee explains to Nick how revenue recognition is broken down and that a lot of information and judgment is involved. It is also pointed out that since the company went public three years ago they have consistently received ‘clean’ opinions from external auditors. Nick admits that Marchetti strikes him as a honest man with years of experience. Out of concern for his aunt’s company he approached his aunt, who is not known for her accounting expertise, but is the CEO of O’Brian Software. After explaining his concerns she asked Nick whether or not they should present this information to the audit committee. Issues/Questions The initial question is whether or not the audit committee should be made aware of Nick’s revenue recognition concerns. As President and CEO of Softrax Corporation, Robert O’Connor, points out, this is a serious claim. It is imperative that Nick does his research before making such a claim. The underlying issue in this case is if O’Brian Software is creating ‘cookie jar’ reserves by understating profits in periods of prosperity and then creating false reserves in times the company needs a boost. The smoothing of revenue recognition can mislead investors by providing them a false impression of the company’s financial standing......

Words: 8540 - Pages: 35

Cookie Jar

...How can John use the IMA Standards of Ethical Professional Practice to evaluate his own ethical behavior? The four IMA ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. John should use these four principles and determine whether or not he acts in accordance with them. In terms of honesty, John tends to follow this principle because he suggests reporting honest numbers on the financial statements. When it comes to fairness, John also acts ethically. For example, John wants to report a fair number up front based on prior year outcomes. As for objectivity, John continually wants to use truthful numbers when reporting bad debt, product returns, and warranty liability. The last principle John must consider is responsibility. Again, John understands that he is responsible for the numbers being reported on the financials and that may be why he is so uneasy about reporting numbers he believes are inaccurate. What steps could John take to resolve the ethical dilemma he faces? As an accountant, John will encounter countless ethical dilemmas. In this situation, if John truly believes the numbers Karl wants to use will misrepresent the financial statements he should get a third parties opinion on the disagreement. If the third party agrees with Karl, and John still believes the financial statements will be misrepresented, it may be his best interest to resign from the position and move on from the company. Concerning the three accounting...

Words: 540 - Pages: 3

Microsoft - Revenue Recognition Issue

...Revenue recognition – the accounting term for determining the amount of revenues to be “booked” for purposes of calculating a firm’s earnings in a given period – is an important, complex and controversial issue. The importance of revenue recognition stems from the accountant’s approach to calculating earnings, which is to first calculate recognized (“booked”) revenues, and then deduct the accounting costs of earning those revenues (a process known as “matching costs with revenues”). Consequently, revenue recognition directly affects reported earnings and indirectly affects balance sheet numbers and several important financial ratios. Generally Accepted Accounting Principles (GAAP) includes some general revenue recognition principles as well as many specific rules for recognizing revenues in particular circumstances. Even then, there frequently is scope for interpretation and judgment by the company’s managers and auditors. For various reasons managers can be expected to have preferences for the amount of reported earnings, so when the rules provide some latitude they can be expected to exercise judgment in a fashion that reflects those preferences. In addition, when there are rules that provide explicit revenue recognition guidance, managers sometimes knowingly or unknowingly violate them. Not surprisingly, approximately 60 per cent of all accounting malfeasance involves revenue recognition issues. Revenue recognition is particularly important in the software industry,...

Words: 2489 - Pages: 10

Cookie Jar

...“Cookie Jar” Andrew D. Ross GEN/200 29Jan2014 Meagan Jones “Cookie Jar” Reflections and Thoughts on Personal Responsibility By: Andrew D. Ross Personal responsibility can also be seen as accountability, which is defined by Merriam-Webster as "the quality or state of being accountable; especially : an obligation or willingness to accept responsibility or to account for one's actions." This should mean that to be accountable for yourself, you would admit to your mistakes, make an effort to make those mistakes right, and live in a way that does not harm others whenever possible. “Personal responsibility is the willingness to both accept the importance of standards that society establishes for individual behavior and to make strenuous personal efforts to live by those standards. But personal responsibility also means that when individuals fail to meet expected standards, they do not look around for some factor outside themselves to blame. The demise of personal responsibility occurs when individuals blame their family, their peers, their economic circumstances, or their society for their own failure to meet standards. The three areas of personal decision making in which the nation’s youth and young adults most need to learn and practice personal responsibility are education, sexual behavior and marriage, and work.” Haskins, R. (2009). Brookings. Retrieved from This is just a......

Words: 801 - Pages: 4


...semester, is it essential that students be prepared to engage, participate and contribute in each session. Lectures and readings will be supplemented by discussion, videos, and case studies, which apply concepts to real-world situations. Textbook, Other Materials and Course Web Site * Bissonette, G. 2012. Business: Strategy, Development, Application. Toronto: McGraw-Hill Ryerson (available electronically or at the University Bookstore). * The course home page (CLEW) will be used to distribute case materials, load course lessons, make announcements, and communicate your course evaluations. It is your responsibility to check the course home page regularly. * Reference materials for the Team Project are on course reserve at the Leddy Library. Learning Objectives This introductory lecture series in the Odette School of Business is intended to endow students with the foundational skills necessary to understand the complex, interdependent, dynamic world in which contemporary organizations exist. We will examine issues and ideas of strategic and operational importance to the success of today’s organizations, and begin to prepare students for future roles as leaders, managers, and entrepreneurs. This is your first opportunity to “LEAD-UP” at Odette. Since we have only 36 hours to spend together, it is essential that each student attend each lecture session prepared to PARTICIPATE, LEAD, and CONTRIBUTE to the ongoing discussions and......

Words: 4348 - Pages: 18


...To what extent is religion a Conservative Force? (33) Religion could be seen as a Conservative Force from different perspectives such as: Functionalism, Marxism and Feminism. However, other perspectives disagree with this and see religion as a Force for Social Change. There are different ways in which sociologists define religion. There is a substantive definition, and functional definition and a social constructionist definition. Substantive definitions focus on the content or substance of religion belief such as the belief in God or the supernatural. Functional definitions focus on the psychological functions it performs for the individuals or society. Social constructionists focus on how the members of society define religion themselves: they argue that it is impossible to produce a single universal definition of religion to cover all cases because different people have different definitions of religion. Religion can be seen as a conservative force in two different senses: it is seen as conservative in the sense of being ‘traditional’ as it upholds traditional beliefs about how society should be organised. It is also seen as conservative as it functions to preserve things as they are. Functionalists see society as a system of interrelated parts or social institutions. Each institution performs certain functions which each contribute to maintaining the social system by maintaining a need. The key feature of religion was not a belief in Gods, Spirits or the Supernatural,...

Words: 1346 - Pages: 6

Jar Jar Script

...STAR WARS EPISODE II JAR JAR'S GREAT ADVENTURE Written by GEORGE LUCAS and JONATHAN HALES Lucasfilm Ltd. Second Draft, June 24, 2000 P.O. Box 2009 Pink Revisions, June 28, 2000 San Rafael, CA, USA 94912 Blue Revisions, July 3, 2000 * Green Revisions, July 5, 2000 THIS MATERIAL IS THE PROPERTY OF LUCASFILM LTD. AND IS INTENDED AND RESTRICTED SOLELY FOR USE BY LUCASFILM LTD. PERSONELL. DISTRIBUTION OR DISCLOSURE OF THIS MATERIAL TO UNAUTHORIZE PERSONS IS PROHIBITED. THE SALE, COPYING, OR REPRODUCTION OF THIS MATERIAL IN ANY FORM IS STRICTLY PROHBITED. 1 EXT. SPACE 1 A vast sea of stars serves as a backdrop for the Main Title, followed by a rollup, which crawls into infinity. There is unrest in the Galactic Senate. Several hundred solar systems under the leadership of the rebel leader, Count Dooku, have declared their intentions to secede from the Republic. This separatist movement has made it difficult for the limited number of Jedi Knights to maintain peace and order in the galaxy. Senator Amidala, the former Queen of Naboo, is returning to Coruscant to vote on the critical issue of creating an army to assist the overwhelmed Jedi. PAN UP to reveal the amber city planet of Coruscant. A yellow Naboo Fighter flies OVER CAMERA toward the planet, followed by a large Royal Cruiser and two more Fighters. 2 EXT. CORUSCANT - DAWN 2 The ships skim across the surface of the city landscape. The sun glints off the chrome hulls of the sleek Naboo spacecraft as they navigate between......

Words: 29232 - Pages: 117