ACC410- CASE PROJECT – EXPANDED ANALYSIS, REPORT No. 2;
Provide the following information for this report by the due date (point reductions will be assessed for incomplete submissions; 3 extra credit points for benchmarking):
I. Analytics (3 points; fractional points are applied)
(1) Provide the metrics or ratios covered since Report No. 1 using the unrestated financials statement figures, and Comment on the results of each and discuss all material anomalies and trends, identifying red flags of fraud, particularly any related to your assigned company’s alleged fraud: 1
(a) Return on assets
(b) Asset turnover
(c) Average Life of Long-term assets (d) Average Age of Long-term assets (e) Debt to equity
(f) Debt service coverage
(2) Calculate the following ratios using the restated financial statement figures that are comparable to the same fraud period financial statements. Compare these results to the comparable fraud period financial statements’ ratios and metrics (most of which you calculated in previous assignments and Report No. 1). Discuss material differences between the restated and unrestated figures and ratios, detailing the fraud effects on trends, and the liquidity, solvency and profitability ratios. Do not perform fraud red flag analysis on restated ratios.
See also ACFE 2018 Fraud Examiners Manual, ¶¶1.244-1.251; see also Id., at ¶¶1.115- 1.121; 1.201-1.243; 1.251-1.262 (posted to Blackboard); and Report No. 1.2
(a) Horizontal or change analysis (b) Vertical analysis
(c) Current Ratio
(d) Quick Ratio
(e) Accounts Receivable Turnover Ratio (f) Number of Days in Collection
(g) Inventory Turnover Ratio
(h) Number of days in inventory
(i) Debt to Equity Ratio (j) Profit Margin
(k) Gross Profit Margin (l) Asset Turnover Ratio
1 For Bankrate.com, in lieu of the inventory ratios, you must substitute EBITDA (earnings before interest taxes, depreciation and amortization. For Weatherford, you must analyze ETA (the effective tax rate).
2 For Bankrate.com, in lieu of the inventory ratios, you must substitute EBITDA (earnings before interest taxes, depreciation and amortization. For Weatherford, you must analyze ETA (the effective tax rate).
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ACC410- CASE PROJECT – EXPANDED ANALYSIS, REPORT No. 2;
(3) Optional Extra Credit: (a) Calculate the immediately preceding enumerated ratios and other metrics in I (2) above using the competitor’s financial statements or industry benchmarks for the comparable fraud period of your group’s company;
(3) (b) Compare the ratios and metrics computed in I. 3(a) with those of your company’s restated figures and ratios computed in I (2) above. Analyze the effects of the fraud on the HZ and VT trends, and the liquidity, solvency and profitability ratios of your company, as compared to the competitor’s trends and ratios. That is, how does your company’s metrics, after the restatement, now compare to the competitors? E.g., does liquidity look worse than it did during the fraud period as compared to the competitor, does profitability look better or worse, etc.? Why? By how much, etc.? Note: The foregoing analyses must be intertwined with the analyses required in sections I (2).3
II. Other red flags (2 points; fractional points are applied)
(1) Report on all insider trading (amounts and by whom) during the fraud period, as alleged in the complaints. [Hint: Look to the consolidated amended complaints table of contents and portions of the complaint under “Scienter” or “Motive and Opportunity”].
(2) Discuss any other motive “pressure” for the fraud alleged or you may have in mind – provide some support or basis for your ideas? (e.g., inflating the price of the stock or assets and revenues to obtain bank loans, issue securities or acquire another company, etc.). [Hint: How is the company’s cash flow over two or three years – is it declining, etc.; look to the notes to the financial statements to see if the company is near breaching debt covenants, etc.; were their new issuances of stock during the fraud period?, etc.].
(3) Discuss any turnover in financial personnel or auditors immediately before or during the class period? [Hint: look at the Proxy Statements for changes in CFOs, Controllers, Audit Committee members, other senior financial officers change in Auditors).
(4) What did the Management & Discussion & Analysis (the “MD&A”; Item 7 to the Form 10-K) report in the first fraud period Form 10-K, as defendants’ explanation for trends or changes in line items from the period immediately preceding the first fraud year? Only concern yourself with those trends that are relevant to the accounting or reporting problems at issue in your case. See also Nike Financials & FinSas on BB.
(5) Provide the corrected explanation in the MD&A as reported in the Amended 10-K or Annual Report for number 4 above. Again, see Item 7 to the Forms 10-K.4
(6) Discuss differences between the MD&As (items II. (4) and II. (5).
3 For Bankrate.com, in lieu of the inventory ratios, you must substitute EBITDA (earnings before interest
taxes, depreciation and amortization. For Weatherford, you must analyze ETA (the effective tax rate).
4 For items II (4) and II (5) you should paraphrase as and use your own words. Spelling and grammar count. Use quotation marks and cites where required.
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ACC410- CASE PROJECT – EXPANDED ANALYSIS, REPORT No. 2;
Note 1: All cheating and plagiarism rules apply to this report (see “Syllabus, Text & Related” content area of the Blackboard) (must be submitted through TurnitIn).
Note 2: The above report should be packaged together with a table of contents and bibliography. The cover page should indicate the following: ACC 410 and section number; Group number, names of participating group members, name of the company and date. Do not place individual group member names within the body of the report. Participating members should only appear on the cover page of the report.
Note 3: All unrestated, restated, and competitor FinSas input must accompany the report.
Note 3: Spelling and grammar count. All cheating & plagiarism rules apply to this report (see “Syllabus, Text & Related” content area of the Blackboard); the primary source of information must be the shareholder complaint. Proper citations include, but not limited to: “Quoted material” (SH Complt., ¶___).
Note 4: The primary source of information for the above Part I background and Part II analytics must be derived from the Consolidated Class Action Complaint and the restated financial statements.
