Questionable Accounting Practices
A review of Sunrise's accounting practices reveals the following problems:
- The company will be required to restate financial statements for 2003-2005.
- The company's preliminary estimate of the impact of the restatement will be a reduction of net income by $50 million for the period 2003-2005, a 26% reduction.
- The company has been required to respond to an SEC comment letter concerning its accounting practices and another concerning its disclosures.
- The company has failed to file its first, second, and third quarter financial statements with the SEC in a timely fashion.
- The price of Sunrise shares fell 34% in the two months following the company's announcement of its accounting review on May 9, 2006.
These facts raise numerous questions, including:
- What were the joint venture and revenue recognition accounting practices that led to the accounting review and SEC involvement at Sunrise? Were these practices appropriate under generally accepted accounting principles and applicable law?
- What explains the timing and handling of the company's disclosure about the accounting review? Was that disclosure adequate?
- Was executive compensaton boosted by improperly inflated earnings during the period under review?
- Was the performance of the audit committee in exercising oversight of the company's accounting and compliance practices appropriate?