Dunlap Case

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Introduction In the mid 1990s Sunbeam Corporation found itself in financial trouble as stock prices and earnings declined sharply. From 1994 to 1996 stock prices declined 52 percent, and earnings had dropped by 83 percent. In response, Sunbeam recruited and subsequently hired Al Dunlap, less affectionately known as “Chainsaw Al” as CEO and chairman of the Sunbeam board in 1996. Dunlap had a reputation as a master of corporate restructuring. Upon being named chairman and CEO, Sunbeam’s stock rose from $12.12 per share to $18.58 adding roughly $500 million to Sunbeam’s market share. Stock eventually rose to $52 per share in 1998. Under Dunlap, Sunbeam slashed jobs, closed factories, and reduced product line to a fraction of its prior offerings.…show more content…
Shareholder pressure to make Sunbeam a viable entity was substantial in light of its prior failings. Opportunity existed in the ability of Dunlap and his team to massage numbers in support of their personal and corporate objectives. It was no coincidence that Dunlap surrounded himself with like-minded and trusted individuals. Only one of Sunbeam’s senior executives was retained after Dunlap assumed control. Lastly, the players involved were able to rationalize their efforts in meeting shareholder goals, personal goals, and skirting (but in their minds) not transgressing acceptable financial reporting standards. Their actions in falsely inflating the company’s financial position were not necessarily illegal, however they clearly violate Generally Accepted Accounting Principles. Dunlap and his management team used bill-and-hold schemes to boost balance sheet revenue, booked sales revenue in periods in which the revenue was not earned, and created “cookie-jar” reserves that misrepresented corporate loss in 1996 inflating income in 1997 (Litigation Releases 2002). Sunbeam auditing firm Arthur Andersen & Co. insisted Sunbeam complied with accounting standards and resolutely supported their…show more content…
The SEC sought injunctive relief preventing Dunlap et al, from further violation of securities regulation and barring them from holding a position of corporate leadership. Additionally, most of those involved remunerated substantial sums in fines and damages resulting from civil, and government litigation efforts. Dunlap and his legal counsel have been conspicuously silent since. In response to the above impropriety a number of initiatives have gained increasing traction in combatting similar future cases of impropriety. In particular, the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 99 (SAS No. 99) reflects a number of influential changes impacting financial reporting, auditing, and future corporate governance. SAS No. 99 adopts a more proactive stance in fraud detection and prevention. A brief list of the notable points in SAS No. 99 include: increased scrutiny and higher standards for auditors in light of past scandals, client and auditor interaction particularly with respect to audit committees, an increase in document support of audit and fraud detection procedures, and implementation of anti-fraud audit procedures. Opinions of the effectiveness of SAS No. 99 are mixed, although it

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