Allegedly Improper Revenue Recognition and Reserves

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In a class action suit against a leading technology firm, Cornerstone Research supported four experts: Professor Roman Weil of the University of Chicago, a corporate governance expert, an industry expert, and an executive compensation expert.

In a class action suit against a leading technology firm, Cornerstone Research supported four experts: Professor Roman Weil of the University of Chicago, a corporate governance expert, an industry expert, and an executive compensation expert. Professor Weil examined allegations that the firm had inappropriately recognized revenue related to its vendor financing programs and held insufficient reserves for inventory obsolescence and product returns.

Professor Weil concluded that the company’s revenue recognition was proper.

Professor Weil reviewed the company’s revenue recognition on sales made concurrently with leases and loans to qualifying customers. Although some of those customers later went bankrupt and were unable to repay the company in line with the terms of their leases or loans, Professor Weil concluded that the company’s revenue recognition was proper and its reserve for uncollectible leases and loans was appropriate when the financial statements were filed. Professor Weil also examined the company’s reserves for inventory obsolescence and product returns and found that the methods used to estimate reserves were reasonable throughout the class period. The case settled.

Case Expert

Roman L. Weil

V. Duane Rath Professor of Accounting Emeritus,
University of Chicago Booth School of Business