Financial Statements Analysis: Overstock.com

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Overstock.com, which is the selected Profit Company of my interest, in recent times received notable negative media hype or publicity since the company formulated some critical decisions concerning the internal accounting policies, the generally accepted accounting principles (GAAP) as well as its relationship with the external company auditors which entirely made the company be obliged to restate the exclusively published annual financial statements up to the period that dates back to fiscal 2008. In essence, the underlying problem was that Overstock.com inappropriately deferred the annual income it had earned during the fiscal period but consequently underbilled its performance partners in the preceding reporting financial periods such as the third quarter of the financial period 2008 and years before. The under billings from the generated incomes were carried forward to the upcoming reporting periods namely the fourth quarter of fiscal 2008, along with the first, second, and third quarters of fiscal 2009.

This implied that Overstock.com evidently took the earned fiscal year’s income which ought to have been reported in the previous financial reporting periods such as in the third quarter of the financial year 2008 and prior, and carried it forward to the forthcoming reporting periods, for instance, the fourth quarter of the fiscal 2008 and years afterward. According to Anatar (2010), the main aim was to materially overstate the company’s financial performance in future reporting periods. Similarly, ‘The Big O’ openly divulged that the company improperly amortized the incurred expenses which were connected to the classified stock units derived from the defined three fiscal years vesting program instead of the straight-line amortization calculated on a three-year basis. In fact, the company applied an outmoded forfeiture rate when computing the incurred expenses under the stipulate financial schedules. Newquist (2010) stated that whereas the company had such plans, it added lots of other adjustments or corrections that were regarded immaterial either in isolation or even amassed.

Generally, several company officials particularly the top staff member from both the accounting as well as the executive departments are normally involved in case an ensuing accounting error attains such a degree. This follows the fact that the accounting department is charged with the responsibility of providing all the investors, stakeholders, and managers with financial information to assist them in making viable decisions. On the other hand, the management is held accountable for the company’s fiscal year financial statements.

The most significant and equally material effect of the initial point appertains to the deliberate effort made by this company to publish deceptive fiscal year financial statements. Actually, Overstock.com infringed GAAO through crafting illegitimate cookie jar reserves intended to substantially condense the future incurred losses or increase the potential earnings from the fourth quarter of fiscal 2008 to the third quarter of fiscal 2009. Basically, Overstock.com nonsensically alleged that the totally amassed amount of the accruing under billings was not in any way assured but rather falsely maintained that the gained eventuality materialized instead of making rational approximations of the uncollectable amount as necessitated No. 5 of the SFAS. Thus, Overstock.com incorrectly recognized the generated income from the under-billed discharged partners since the company’s outstanding amounts were collected based on the non-generally accepted accounting principles cash basis as opposed to when the income was as required under the accrual accounting basis (Anatar, 2010).

The distinguished strengths of Overstock.com, which emanates in its published vision and mission statements, were therefore contravened. The strength that is in line with its mission is yearning to save the clients money while the vision is the endeavor to offer the possibly best values alongside advanced client experience to all online shoppers. Furthermore, the strengths entail being supportive, reliable, sincere, resourceful, and accountable besides remaining devoted to the augmentation of service delivery and productivity (FAQ’s, 2010). To have effectively alleviated the ensuing situational effects, Overstock.com ought to have issued a public act of contrition and accordingly admit the amassing financial statement reporting mistakes. This was however not the case since the company CEO confirmed his unreserved discount for the in-place accounting rules through publishing the financial statements. This implied that the published financial statements were caused to undergo interpretation and that any prevailing interpretations at any given moment, was merely an authoritative function and not the reality (Newquist, 2009).