Is it Possible to Forecast Financial Schenanigans Essay -- essays rese

IntroductionI pitch Peregrines story on the Internet while doing a Google search. As I was reading Financial Shenanigans from Horward Schilit to prepare for the level 2 of the CFA examination, I decided to have a closer look at the monetary statements of Peregrine Systems Inc. that were published before the shenanigans became publically kn possess (in may 2002) in order to detect those shenanigans solely based on those fiscal statements more specifically on the forms 10K filed by Peregrine between 1998 an 2001. here is a summary of the story, quoted from the court that had to rule on those irregularities1.Peregrine Systems, Inc. (Peregrine) was a computer computer software product company headquartered in San Diego, California. Peregrine was incorporated in California in 1981 and reincorporated in Delaware in 1994. From its initial public go (IPO) in April 1997 until it was delisted on August 30, 2002, Peregrine was a in public held corporation whose percents were registere d securities traded under the symbol PRGN on the National Association of Securities Dealers automatize Quotation system (NASDAQ), a national securities exchange that used the office and instrumentalities of interstate commerce and the mails.2. Peregrine developed and sold business software and related services. Software license fees accounted for the bulk of Peregrines publically account r blushues. Peregrine sold its software directly through its bear sales organization and indirectly through resellers such as tax added resellers and systems integrators.3. From its IPO in April 1997 through the quarter ended June 2001, Peregrine describe 17 consecutive quarters of r level(p)ue growth, always meeting or beating securities analysts expectations. Peregrines behave price soared from its April 1997 IPO price of approximately $2.25 per look at (split adjusted) to approximately $80 per share in marching 2000. By serve 2002, Peregrine had issued over 192 million shares.4. In w t earethorn 2002, Peregrine let on that its prior public reports had been materially false and that it had employed a mixture of devices, schemes and fraudulent accounting practices over an extended period of time in order to portray itself as far more healthy and prospering that it actually was. After Peregrine let out its true financial results and condition, its stock-taking price dropped precipitously and now trades at below $1 per share... ...the shoplifting size of the 10K that went from 1330 pages in 1999 to 154 pages in 2001. That implies that the company disclosed significantly slight information on the way it constructed its financial statements.This study also name some weaker warnings, but failed to find the heart of the gimmicks. I dont think that those warnings could lead to any conclusion by themselves, as at that place may be some noise even in a healthy company.What actually happened?PeregrineInflated revenue by preserve sales to resellers that werent finals Sold false invoices to banksImproperly accounted for cash entreatyImproperly wrote off receivablesImproperly accounted for stock optionsFailed to maintained adequate books and recordsIt seems that even if they inflated revenue, they had a strong business activity (even if it wasnt as large as what their statements indicated) the other gimmicks didnt involve revenue. Their stock price, which add up a low of $2.25 during the crisis, is now trading in the $20 setting Is it Possible to Forecast Financial Schenanigans Essay -- essays rese IntroductionI launch Peregrines story on the Internet while doing a Google search. As I was reading Financial Shenanigans from Horward Schilit to prepare for the level 2 of the CFA examination, I decided to have a closer look at the financial statements of Peregrine Systems Inc. that were published before the shenanigans became publicly known (in May 2002) in order to detect those shenanigans solely based on those financial statemen ts more specifically on the forms 10K filed by Peregrine between 1998 an 2001. here(predicate) is a summary of the story, quoted from the court that had to rule on those irregularities1.Peregrine Systems, Inc. (Peregrine) was a computer software company headquartered in San Diego, California. Peregrine was incorporated in California in 1981 and reincorporated in Delaware in 1994. From its initial public religious offering (IPO) in April 1997 until it was delisted on August 30, 2002, Peregrine was a publicly held corporation whose shares were registered securities traded under the symbol PRGN on the National Association of Securities Dealers automate Quotation system (NASDAQ), a national securities exchange that used the kernel and instrumentalities of interstate commerce and the mails.2. Peregrine developed and sold business software and related services. Software license fees accounted for the bulk of Peregrines publicly reported revenues. Peregrine sold its software directly t hrough its own sales organization and indirectly through resellers such as revalue added resellers and systems integrators.3. From its IPO in April 1997 through the quarter ended June 2001, Peregrine reported 17 consecutive quarters of revenue growth, always meeting or beating securities analysts expectations. Peregrines stock price soared from its April 1997 IPO price of approximately $2.25 per share (split adjusted) to approximately $80 per share in March 2000. By March 2002, Peregrine had issued over 192 million shares.4. In May 2002, Peregrine disclosed that its prior public reports had been materially false and that it had employed a transmutation of devices, schemes and fraudulent accounting practices over an extended period of time in order to portray itself as far more healthy and self-made that it actually was. After Peregrine disclosed its true financial results and condition, its stock price dropped precipitously and now trades at below $1 per share... ...the shrink size of the 10K that went from 1330 pages in 1999 to 154 pages in 2001. That implies that the company disclosed significantly less(prenominal) information on the way it constructed its financial statements.This study also ensnare some weaker warnings, but failed to find the heart of the gimmicks. I dont think that those warnings could lead to any conclusion by themselves, as in that respect may be some noise even in a healthy company.What actually happened?PeregrineInflated revenue by transcription sales to resellers that werent finalsSold false invoices to banksImproperly accounted for cash dispositionImproperly wrote off receivablesImproperly accounted for stock optionsFailed to maintained adequate books and recordsIt seems that even if they inflated revenue, they had a strong business activity (even if it wasnt as large as what their statements indicated) the other gimmicks didnt involve revenue. Their stock price, which hit a low of $2.25 during the crisis, is now trading in the $20 set out