Biovail Corporation

TABLE OF CONTENT

I.        EXECUTIVE SUMMARY        

II.        STATEMENT OF THE PROBLEM        

III.        CAUSES OF THE PROBLEM        

IV.        DECISION CRITERIA AND ALTERNATIVE SOLUTIONS        

V.        RECOMMENDED SOLUTION, IMPLEMENTATION AND JUSTIFICATION        

VI.        REFERENCES        

1. EXECUTIVE SUMMARY

Biovail Corporation was one of the Canada’s largest pharmaceutical companies. On September, 2003. One of its truck involved in a multi-vehicle traffic accident. Biovail announced that the revenue associated with the truck is $10-$20 million.

In this case, we found that there are main issues which are revenue recognition and FOB sales accounting as stated in case title. In revenue recognition, analyst has claimed that Biovail overestimated the value of their product in truck which involved in an accident. Investigation showed that the truck might not carry 20 million worth product. In second issue, there was a conflict of FOB destination and FOB shipping.  Crombie told the analyst that their company had title change with the Distributor which is FOB shipping point. While one of the Brovail’s employee from the Distributor stated that he had called and emailed Brovail’s vice president of finance regarding to the changes of policy to FOB Destination.

We suggested that the best solution for Biovail would be improvement of internal control. Both of the issues above were caused by poor judgement and misunderstanding respectively. The board of director or audit committee play a big role in resolving these issues.

1. STATEMENT OF THE PROBLEM

Based on the case study of Biovail Corporation, we have found out that there are two problems that can be detected. The first issue is mainly about the accounting policy related to the revenue recognition. There are two types of Freight On Boards (FOB), which is FOB Shipping point and FOB Destination point. Brian Crombie who is the chief financial officer of Biovail Corporation informed the analysts that Biovail’s contract with the Distributor had title change in Manitoba when it left the shipping dock indicating FOB Shipping point. On the other hand, there was an employee who called and emailed the vice president of Finance, Kenneth Howling to amend the statement on when the title to the product passed to the Distributor where it is supposed to be FOB Destination (Chapman, 2009, p. xx). The conflicts rose because FOB is crucial to determine whether the customer or the supplier will be the one responsible for the expenses.