Far Accounting

d) Vesania Networks suffers from a culture that promotes playing with the numbers. What measures    the CEO and CFO take to clean up the accounting mess through the required restatements and related disclosures?

         From financial reporting perspective, managers may use earnings management to meet analyst’ earnings forecast, thereby avoiding the reputation damage and strong negative share price reaction that follows a failure to meet investors’ expectations. Other than that, management may use it to report a stream of smooth and growing earnings over time. In the case of Vesania Networks, the management uses earnings management techniques aggressively which lead to several problems that requires a reclassifications and restatements of earnings. There are several measures that the CEO and CFO should consider to clean up the accounting mess through the required restatements and related disclosures.

        The first measure is to make a correction action.  The cases started when one of the sales team wrote a contract giving the customer discounts on future purchases. It shows that the lower management make decision without consulting the upper management and only the results were reported to the upper management. So, in order to prevent this from keep happening the CEO and the CFO have to change the culture of working among the staffs by increasing truthfulness and faithfulness. Both CEO and CFO should communicate the change to the entire company and staff. The new change in culture should be the core objective of the company. The upper management should be reported with all the decision and even opinion to all problem that rises within the problem. By doing so, the internal control system of the company can be strong and will appeal to the investors and also the analyst.

        The second measure is to get back credibility in reporting to investment community.  The company has promised too much, that they could not deliver growth at the rate that they could which is to grow 3% to 5% faster than the industry. Currently, the company getting most of the revenues from older technologies, where sales are declining. So in order to get back the credibility in reporting to investment community, the company has to meet the investment community expectations first. For example, to change from older technologies to a new one. Technologies grows fast this days, so Vesania Network should consider to change their technologies to compete with other company and to increase the growth rate to meet the investors’ expectations.  Once the company get back the credibility in reporting to investment community, the community should expect more investors to invest in the company which in the future can lead to a better and promising future.

        The third measure is to consult the consul about how to facing the lawsuit. The Vesania Networks stock’s collapse did a lot of damage and in this company case, because of their repeated guidance, it would not be easy to get the suits dismissed. The worst among all suits is a whistle-blower suits. This can harm the whole company, as the whistle-blower knows internally and externally about the company. In order to handle the suits, the first thing that the management should do when receive the suit papers is to review them carefully with an experiences business lawyer to handle it in a professional way and seek for a better solution without harming the company. Then inform the insurance provider which to cover the company in the event of a lawsuit. After done consulting the lawyer, the company should decide how to proceed and respond the complaint.