Sunbeam Case Summary

1) A restructuring reserve is a liability account that is used to accrued expenses to cover future cost of a business and offset the actual cost of restructuring the business. This account has to properly be disclosed in the financial statements. If this account is overstated, it can add a boost to earnings because the money unused goes back into the company. Sunbeam used the restructuring reserve to accrue expenses related to the future change in operations which can include; lease expenses, severance packages for employees and exit costs that come with the closing of facilities. The reserve account also included costs that would benefit Sunbeam in the future such as; costs of package design, costs of employee relocation and costs for consultant fees. All of these costs will help reconstruct the company.
An auditor would have to categorize all of the items that are being accounted for in the restructuring revenue account and collect

It is important for an auditor to consider the qualities of the valuation or allocation assertion when applying the assertion to Sunbeams restructuring reserve. Given the nature of the restructuring plan established by CEO Dunlap, there were many product lines in the inventory becoming obsolescent.

4) Sunbeam’s new upper managements were hired during 1996. When they were hired there were many issues and problems and many expenses. Management wanted to look good in 1997 and decided to reduce their expense amount in 1997 by overstating the expense amount in 1996. This violates the matching principle because expenses that were related to revenue must be recorded in the same time period. By doing this it overstated net income in 1997 and made the management team look good to the Board and