Gemstar-tv Guide Flashcards
What were the 2 revenue recognition issues in 2001 10K?
1 $100 million dispute of licensing fees
2 $20 million revenue from unusual barter transaction
What accounting policy of Gemstar’s was questionable to financial analysts?
Company’s revenue recognition policies
What was restated between 1999 and 2001? What did this increase?
$250 million in revenues
Increasing losses by $200 million
Methods used by GTGI to inflate its operating results? 3
1 recognized revenue under expired, disputed and nonexistent
Contracts
2 diverting revenues from media and services sector to interactive
Platform sector
3 multiple element transactions used to inflate reported revenue
Of interactive platform sector
GTGI audit engagement team should have contacted KPMGs technical staff in the firms headquarters office when the auditor’s
Uncovered…
Suspicious and unusual transactions recorded by client
KPMG Consultation policy
Criticized by SEC for not being sufficiently comprehensive or
rigorous
How did the SEC criticize KPMGs audit engagement team’s materiality determinations?
The team failed to recognized qualitatively how important each
Business line was being observed by securities analysts
Failure of audit engagement on licensing agreement with AOL?
Failed to challenge managements assertion and recognize long term fee for the year 2000 instead of prorating over 8 years
Gemstar’s recognizing revenue from Scientific Atlanta
Continued to recognize revenue as if agreement still existed
After getting in litigation battle with Scientific Atlanta
GTGI falsely recorded revenues for payments that weren’t received
KPMG auditors allowed this
Multiple element transactions, audit teams failure
Failed to gather sufficient evidence on the transactions
Failure to get client to disclose in notes nature of transaction
Barter transactions, 3 ways KPMG FAILED
1 failed to exercise professional due care and skepticism
2 failed to adequately disclose
3 failed to report accurately
