Beazer homes was the sixth largest U.S. home builder during the 1998-2006 housing boom. Like other major home builders, Beazer’s market value grew by a factor of 8-10 during that period. However, the new home market slowed in 2006 and then collapsed in 2007.
The SEC alleged that Michael T. Rand, Beazer’s chief accounting officer, understated Beazer’s reported profits in every quarter but one from 2000 through 2005 by understating Beazer’s “land inventory” account and by overstating its “cost to complete” reserve. The SEC further alleged that during each of the four quarters in 2006, and in the first quarter of 2007, Mr. Rand increased Beazer’s reported profits by increasing the “land inventory” account, decreasing the “cost to complete” reserve, and fraudulently recording sale-and-leaseback transactions for model homes.
The case provides an excellent overview of the U.S. housing boom and collapse. It can be used prior to New Century Financial Corp (Chapter 3), which covers the collapse of a sub-prime and Alt A mortgage lender. The case is also excellent for covering the practical issues of accrual accounting in uncertain environments.
The SEC charges imply that it is relatively simple to estimate the value of the firm’s “land inventory” and “cost to complete” accounts. When a home builder acquires land for a new housing development, some land is set aside for streets and sidewalks, some for parks or lakes, and some for open space near busy roads. The builder then subdivides the remaining land into lots it hopes to sell. Lots near a park or lake are more desirable, while lots near the entrance to a subdivision are typically less desirable. Someone assigned a cost of the land to individual lots, and that assignment process is clearly arbitrary. In addition, as the property becomes more or less desirable, the remaining land becomes more or less valuable than when the firm first estimated the value of each lot. The SEC’s complaint made the valuation process seem far more objective than it is in practice.
The cost-to-complete reserve covers the cost to complete sold homes. That includes, for example, cracked driveways or basement floors, leaking faucets, roofs, or windows, or faulty painting or landscaping. The average cost per home might be $5,000 or $10,000, depending on the home cost and the history of the development. After 6-12 months, the allowance for a particular home might be reduced to zero as the warranty expired or as the likelihood of claims declined. The SEC complaint made that valuation process seem far more objective than it is in practice, particularly for a rapidly growing firm that almost certainly was relying on less experienced managers and workers, and less experienced accountants.
The case also covers a sale-and-leaseback transaction. Those accounting rules are complex, so again, it might not be clear that Mr. Rand engaged in fraud.
Finally, the cumulative alleged profit understatement for 2000-2005 was about $72 million for a firm that had about $2 billion of operating profits. In addition, during nine quarters from 2007-2009, Beazer recorded about $1 billion of impairment charges. Given the implicit subjectivity in those nine impairment charges, it seems highly likely that the “land inventory” and “cost to complete” accounts were also highly subjective numbers.
I use this case to consider the subjectivity of various accrual accounts. I also use it to consider who would make the accrual calculations. Beazer constructed housing developments throughout the nation. Michael T. Rand almost certainly was not personally responsible for preparing accrual estimates at the operating level.
For each of the accounting issues discussed in the body of Case 9:
Discuss whether it seems likely that Dell recorded the transaction improperly to manipulate results or whether it was more likely an honest mistake (e.g., Dell did not know about the rule; the implementation relied on judgment and the investigators had the benefit of hindsight; or the sheer volume of low-value orders Dell ships each day makes it very difficult to properly implement these detailed rules).
Discuss whether the error addressed in Part 1 of this discussion is material and should have been disclosed. Review the accounting changes and internal control procedures that Dell proposed, and evaluate those changes in terms of their probable costs and benefits.
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Test and Response Presentation and Thesis The globe is in the focal point of an expert ached "post-Cold War progress". This virus war progress will keep proceeding till one decade from now. There are such huge numbers of component and forces that are working amid this time. So of the elements have negative effects while a portion of the components have positive effects. The general public of free countries is broadening, the economy of the world has essentially improved starting from the turn of the "late 80's and mid 90's", and a considerable lot of the specialists are anticipating quickly developing economy (Erwin, Magnuson, Parsons and Tadjdeh, 2014). From the perspective of national security, the difficulties that United States diminished arranged by scale or size they are sheltered from some other worldwide difficulties yet at the same time there are some abroad difficulties that interests of United States are confronting. In any case, other than these components and other positive development, this season of advancement remains muddled and loaded with difficulties. In the ongoing occasions, there are as yet observed perhaps erratic difficulties, a blend of social, statistic, money related, and political circumstances(Allen, 2014). It is important to confront the difficulties and reaction well to such dangers. The theory articulation is that security of a nation is essential yet the inquiry here is that how a nation makes procedures to protect its national advantages. In this paper we will talk about the dangers and difficulties that are looked by the United States and how the United States reactions to every one of these dangers and difficulties. Besides, the paper distinguishes that how the national power instruments can be used for the wellbeing and security of the state so as to offer reaction to the recognized dangers and difficulties. Three dangers or difficulties to United States' interests In the ongoing occasions, the United States' interests are confronting numerous difficulties and dangers. A couple of the difficulties and dangers are referenced beneath: 1: Peace America's most prominent resource and intrigue is its kin. The general population of America are the most regarded one in the nation. Individuals living in America fabricate a country from individuals originating from al h religions, races, hues and so forth and live in harmony. The general population of America will be given harmony and they will show protect their tranquility. The security powers of America will do all the conceivable things to verify the tranquility of the nation and make the general population of America assume a vital job in the tranquility of the Alternative world as well (Erwin, Magnuson, Parsons and Tadjdeh, 2014). The nation faces a few dangers and difficulties about the flourishing as the catastrophic events are a major risk to the harmony and thriving of the nation. 2: The security of US, its kin and its Allies Security of the country and its kin is express most duty of the military and govt. of United States. US of America is likely the most serene nation known to man. The organization of the nation has a major duty of verifying them. US is making move to make suitable methodologies for the security of its kin and the accomplices of the nation. The security of partners and accomplices of the nation is essential for the nation (Bareer, 2010).. 3: Values It is accepted by the govt. of the United States that there are a few qualities that are all inclusive and they are attempting their best to advance these qualities. Opportunity of talking, adoring of the religion and determination of the pioneers and so on are comprehensive of these qualities. The essential establishment of United States of America is on these qualities so they become testing and threating in some cases. The United States' reactions to distinguished dangers or difficulties 1: Peace and Prosperity The govt. of United States has made some suitable answers for face the harmony and success issues that the nation faces. The nation has constructed is capacity to confront and take care of the issues identified with debacles so the harmony and flourishing of the general population of United Sates could be put something aside for a long haul. Fitting laws are made to diminish the viciousness in the nation (Erwin, Magnuson, Parsons and Tadjdeh, 2014). (Wohlstetter, 2014). 2: Security The military of United States is dynamic all the ideal opportunity for the security of the country, its kin and the accomplice and partners of the nation. The nation has a parity in the selection of new procedures and utilization of new instruments. For their unions, America stand joined with its accomplices to help them when they need their assistance in security (Wohlstetter, 2014). 3: Values The govt. of United States acquainted a few laws with deference different religions and the estimations of the nation and different religions living in the nation. They are advancing these qualities in all around the world and doing suitable techniques to keep it protected and secure in the nation. Suggested needs The American Intelligence and Army are making a decent attempt to secure the interests of America and they are endeavoring hard endeavors to protect it from any risk or test. The US should make its digital quality solid as the country can be hurt by hacking its national information. It is prescribed to verify the national information of the state so as to guard it by any kind of digital hacking which is compromising nowadays (Erwin, Magnuson, Parsons and Tadjdeh, 2014). The digital weapon security is on the top need of the Unites States. US is expanding the external safe circle with the goal that nobody can risk or damage the country. The estimations of the nation ought to be remained careful by presenting new laws. End In the ongoing occasions, the world has swung in to a perplexing and perilous spot in light of the fact that after the virus war the forthcoming war will be digital war, a war which is extremely compromising all around. Significant dangers that are being looked by United States are security of the general population of United States, Peace and Prosperity and the qualities. The United States would should be prepared to assault to such helpless dangers so as to guard the national interests. From the perspective of national security, the difficulties that United States diminished arranged by scale or size they are sheltered from some other worldwide difficulties yet at the same time there are some abroad difficulties that interests of United States are confronting. Be that as it may, other than these components and other positive development, this season of advancement remains entangled and brimming with difficulties.>
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