Channel Stuffing or Sales with a Right to Return?

• In Event: Breakfast with Research Roundtable Forum Session
  In Paper Session: Roundtable 4: Financial Accounting III

Abstract

In this case study we present the problems created by misinterpretation of Accounting Standards by a company and the independent auditor’s failure to identity and report these problems. The company, Medicis Pharmaceutical Corporation (Medicis), made several mistakes in the revenue recognition process as it relates to Sales with a Right to Return. Ernst & Young, their auditor for over two decades, did not exercise professional skepticism in conducting the audits and thus failed in their duty to ensure that investors receive reliable information. This eventually led to litigation with heavy penalties for the company and its auditors.

Authors

• Arundhati Rao, Towson University

• Charles L. Martin, Towson University

• Wayne T. Prem, Towson University