Accounting Problems at Cutter & Buck - Essay Example

The organization entered into illegal accounting territory when $5.6 million of products that had been shipped early were returned. As a means of avoiding the revenue setbacks, the organization decided to conceal them by dispersing them between four departments, in effect allowing the organization to largely reflect the earlier robust financial statements.
Impact of Problems on the Company’s Financial Statements

These accounting problems impacted the company’s financial statements as they erroneously reflected robust sales and revenue figures when in reality the payments for these products had not been received. In further concealing the true incoming revenues through dispersing losses among departments, the financial statements did not accurately reflect sales figures for the period, as this practice concealed a 6% loss.
C&B Employees and Sanctions Imposed

Two primary employees at Cutter & Buck were sanctioned for their participation in these accounting practices. The first employee is Stephen Lowber, the former chief financial officer. Lowber was sanctioned by paying a $50,000 fine and agreeing to not serve as an officer or director of a public company. In addition, Lowber agreed to cooperate with investigators in detecting past accounting fraud at the company. The second employee involved was David ‘Andy’ Hilton, the former regional vice president for sales. Hilton was sanctioned by agreeing to pay a $25,000 fine.
Do Their Actions Pose Ethical Problems?

Their actions pose ethical problems for the company. When one considers that the organization is a public company they are not simply responsible internally, but also must be responsible to stakeholders. Capital market research demonstrates that one of the primary contributing elements to shifting stock prices is revenue figures. Through the organization’s practice of recording revenue early and then concealing losses among departments, they were able to produce inaccurate statements that may have contributed to inflated equity valuations.
Were Other Groups of Individuals Affected by Their Actions?

Other groups of individuals were affected by the accounting practices. Perhaps the most direct individuals affected were those that aided in the erroneous financial accounting. In these regards, former executives Hilton Jones and Marty Marks were also accused of participating in erroneous accounting practices. Individuals working at the lower levels of the organization may have been impacted as the inflated valuations may now require the company to engage in a string of layoffs. Still, the most profoundly impacted are the shareholders that bought the stock of Cutter & Buck. While a class action lawsuit has been issued requiring the organization to pay damages, it’s not clear if this will equate to the full financial damage caused by erroneous accounting practices. Read More