Accounting practices overseas 648
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I am writing to you to request advice on a couple of accounting matters and their potential implications in view of the Sarbanes-Oxley Act of 2002.
Let me give you, first, a short insight on the Company. I am a finance professional working for a U.S. multinational firm in Latin America. The business of the Company is in the healthcare sector, with 2004 Sales in excess of USUSD 20 Billion, 2004 Expenses in excess of USUSD Billion, and Net Profit After Tax in excess of USUSD Billion. The Company’s tax period in the U.S. runs from January 1 to December 31, with SEC filings occurring after each quarter closing on March 31, June 30, September 30 and December 31. The Company operates in this country as a branch of a Delaware Corporation. It has local sales of just over USUSD 30 Million. Within the scope of my job, I have oversight over the financial operations of the branch, which includes Accounting Operations.
Now, let me present the first situation. Every year, the local subsidiary holds a Sales Convention for its sales personnel. In 2005, this event was held in late January with an approximate cost of USUSD 300,000. The invoices corresponding to the expenses of the Convention were received from suppliers from November 2004 to March 2005. All these payments were recorded as pre-paid expenses. In March, the Pre-paid Account was credited for the full value of the Convention and the corresponding Sales Convention Expense was debited for the full value of the event. Let me clarify that, in January, no debit was made to expenses to create an accrual for the estimated value of the Sales Convention. What type of impact would it have if the expense would have been recorded in a following quarter and not within the same quarter?
The second situation is as follows. In several occasions at year-end time, the Latin America Division, in view of accomplishment of its Sales and Profit budgets, decides to limit profit generation in the month of December. One of the actions used to achieve this, is to take product samples (a promotional expense item) to be used during the first quarter of the year, out of stock and distribute them to the sales representatives at the end of December.
Based on the descriptions above, I wanted to request guidance from you, as to whether the situations described above constitute a violation of US GAAP and whether they are in collusion with the Sarbanes-Oxley Act of 2002.
Thank you in advance for your advice.