materiality – Fraud Files Forensic Accounting Blog

Koss Corp.: Commit the Fraud and Cover It Up

8 October 201120 January 2010 by Tracy Coenen

I’ve been talking here, at DailyFinance.com, and to the media about the massive fraud at Koss Corp. and how I think it may have been committed and covered up. The time has come to get more specific about how I think it happened, and why I think the auditors did not find it.

Disclaimer: I have no inside knowledge of the situation at Koss. I have never worked for or with them, and I have never worked for or with Grant Thornton, the auditors. I haven’t seen anything other than what’s been released publicly by the press. I am merely speculating.

The contention has been made that the auditors should have found this fraud, as they are required to consider fraud in planning and performing their audits. Further, the fraud is at an estimated $31 million (my guess is it will end around $50 million), which is clearly material to Koss. “Material” generally means it’s big enough to matter to the overall financial picture of the company. With annual sales hovering around $40 million a year at Koss Corp., $31 million (or more) stolen over a 5+ year period is certainly material.

So how did the auditors miss it? That’s easy. Three simple steps by Koss VP of Finance Sue Sachdeva could prevent the auditors from encountering evidence pointing them to the fraud.

Overstock.com Admits They’re Clueless About the Accounting Rules

3 November 201713 November 2009 by Tracy Coenen

This week Overstock.com (NASDAQ:OSTK) notified the public that they wouldn’t file their third quarter 10-Q on time. The reason:

The registrant has been unable to complete its financial statements for the quarter ended September 30, 2009, as it is continuing to analyze the proper accounting treatment for $785,000 the registrant received during the first quarter of 2009 as repayment under a new agreement with the vendor for amounts the registrant overpaid to the vendor in 2008 and early 2009. The registrant believes the amount is properly recognizable in the first quarter of 2009, when the cash was received. However, the registrant is continuing to review the issue, and may ultimately conclude that the amount should have been recognized in 2008.

Read moreOverstock.com Admits They’re Clueless About the Accounting Rules

Overstock.com’s “Unusual” Financial Statements and Disclosures

31 October 201130 April 2008 by Tracy Coenen

Supporters of Patrick Byrne and Overstock.com (NASDAQ:OSTK) can’t seem to get over the fact that the company has never turned a profit and that it is being investigated by the SEC (despite false assertions in the most recent conference call that the SEC has resolved “all the issues” and has sprinkled holy water on the company) and that there are numerous “unusual” disclosures and elements in the financial statements.

I thought it would be fun to take a trip down memory lane regarding all these unusual, irregular, questionable, problematic, abnormal, odd items and see if a pattern emerges.

While under the watchful eye of the Sith Lord, I have generated quite a few blog posts regarding Patrick Bryne and Overstock.com. Isn’t it amazing how one, solitary public company can have situation after situation that indicates something is wrong with the financial data and disclosures?

Materiality at Overstock.com Inc.

14 August 201121 February 2008 by Tracy Coenen

Sam Antar made this nice find in regard to materiality, one of many issues at Overstock.com (NASDAQ:OSTK). You see… materiality is an issue because, in addition to “unusual” material items at Overstock, we’ve seen several immaterial “unusual” items as well.

Users of financial statements have a tendency to overlook “immaterial” items, because by definition, they are quite small and likely don’t make much of a difference when you look at the financial statements as a whole

But don’t be fooled. Items deemed small and “immaterial” can in fact be very important to the financial statements. So says the SEC in Staff Accounting Bulleting 99:

Is fraud ever immaterial?

14 August 201111 February 2008 by Tracy Coenen

A search that brought someone to my blog over the weekend gave me the idea for this post. Immateriality is a concept in accounting that amounts to “too small to matter.” Think of a company with $100 million in sales each year. If they made a mistake in recording their sales last year, and the number was really $99,950,000 (an error of $50k), would it matter?

Probably not. Whether sales are $50k higher or lower for a company with sales of $100 million really…. it’s just not a big enough difference to matter.