Research a recent (within the last five years) article that discusses material m

Question

Research a recent (within the last five years) article that discusses material misstatements in the revenue or acquisition and disbursement (inventory) cycles. Discuss the ethical effects of this misstatement and what procedures would have prevented the misstatement.

Be sure to support your statements with logic and argument, citing any sources referenced. Post your initial response early, and check back often to continue the discussion. Be sure to respond to your peers’ and instructor’s posts, as well.

Explanation / Answer

Osiris Therapeutics a biotechnology company was recently charged with overstating revenue growth. The fraud which included several of the company’s top executives composed of modifying invoices to artificially inflate recorded prices for customers and backdating documents so that revenue would be recognized in earlier periods. This was done with the intention of continually exceeding investor expectations for revenue growth.

There are so many ethical failures in this case, a few of which include, failing to protect the company’s investors from making decisions based on accurate information, attempting to mislead auditors, and failing to perform their duties as executive officers. This is in addition to the fact that promising stem cell treatments may not be given to those who need it as the company’s reputation is diminished and its products will surely be questioned. Even if there were no shortcuts in the research process, this fraud diminishes the validity of all claims the company has made including those about the effectiveness of its treatments.

Audit procedures such as looking at risk factors or sampling the end of period invoicing would have revealed a need to look deeper at Osiris’ revenue. The fact that company revenue was growing consistently higher than expectations is a major red flag that should have warned auditors that they needed to look closer at the revenue accounts. Reviewing the invoicing at the end of the prior period and sampling for differences in billings, could have shown the inflated invoice pricing. Internally, the company suffered from a lack of oversight from the board of directors whose responsibility it is to oversee the internal audit function of the company. This is an example of a culture that encouraged fraud and the tone at the top of the organization was a dismal failure. Any of these should have occurred to prevent this from happening.

References:

Dinsmore, C., &Gantz, S. (2017, November 03). SEC charges Osiris Therapeutics and four former

executives with accounting fraud. Retrieved January 08, 2018,

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