The SEC is investigating Barnes and Noble’s accounting. This is based on the company’s decision to restate its earnings for both 2011 and 2012 fiscal years. In 2011, there was a loss restatement from $ 68.8 million to $ 73.9 million. In 2012, there was a loss restatement from $ 64.8 million to $ 68.9 million (Trachtenberg, 2013). This matter has led to a decline in stock price of the company by 12% to $ 14.43. Earnings restatement was based on an overstatement of accruals for the two years. A deferred tax liability is another correction that Barnes and Noble wish to change. The current poor performance started last year when the company recorded low holiday sales. This bookseller has been struggling to gain market share against its competitors, led by Amazon.com (Trachtenberg, 2013). However, analysts are of the opinion that this litigation will not affect its future earnings, even though its current sales may decline heavily.
Relationship between the article and objective
This article relates to one objective of week 3. This objective relates to preparation of an income statement, statement of retained earnings and a balance sheet. This article has a close relationship with this objective since the matter being investigated deals with preparation of these statements. The adjustments have led to the litigation, hence a concern in preparing these financial statements.
Relationship between the article and the accounting profession
This article relates with aspiring accountants and internal auditors directly. These individuals deal with the actual preparation and review of the financial statements; the core objective of this article. In terms of what the content of the article relates with the accounting profession, there is a close correlation between the restatement of earnings and an accurate preparation of the statements themselves. The issue at hand is an investigation after a correction of earnings which have been reported (Trachtenberg, 2013). This content is rich for the accounting profession since aspiring accountants are warned on decision making. They should avoid such mistakes in preparing these statements. As for where the article impacts; it is in the US. The SEC has the mandate of investigating such accounting matters in the US. For aspiring accountants in other countries, following rules set by their regulators is necessary. Overall, this article indicates that financial statements should be prepared very accurately. If there are adjustments, they should be done within the framework that has been set by regulators.
Financial statements affected
This article affects several financial statements. The major statement affected is the income statement. This is because the changes affect the reported loss figures. However, the balance sheet is affected since the retained earnings are affected by the loss restatement from $ 64.8 million to $ 68.9 million (Trachtenberg, 2013). The low loss figure will increase the retained earnings for Barnes and Noble. The other effect for the balance sheet will be occasioned by the alteration of deferred tax liability.
Action items for accountants
In the future, we should focus our attention and expertise on preparation of financial statements. As aspiring accountants, we should learn and assimilate federal regulations in our everyday activities. If we follow the regulations, chances are slim that such an investigation will not be repeated in the future in our organizations. We should be thinking about the legal framework in which we operate so that our accounting procedures meet the required standards.
Trachtenberg, J. A. (2013). SEC Investigates Barnes & Noble's Accounting. The Wall Street Journal, 1-3.