Case: ETHICS AND REVENUE RECOGNITION
Alan Dunlap is CEO of a large appliance wholesaler. Alan is under pressure from Wall Street Analysts to meet his aggressive sales revenue growth projections. Unfortu- nately, near the end of the year he realizes that sales must dramatically improve if his projections are going to be met. To accomplish this objective he orders his sales force to contact their largest customers and offer them price discounts if they buy by the end of the year. Mr. Dunlap also offered to deliver the merchandise to a third-party warehouse with whom the customers could arrange delivery when the merchandise was needed.
Required:
1. Do you believe that revenue from these sales should be recognized in the current year? Why or why not?
2. What are the probable consequences of this behavior for the company in future periods?
3. What are the probable consequences of this behavior for investors analyzing the current year financial statements?