Biovail Case Study Essay Example

which can be proven by a packing slip or any other shipping documentation. In a circumstance like this, Biovail will likely undergo an audit with extreme scrutiny to ensure all terms of the contract were fully carried out. However, if Mr. Crombie (Biovail CFO) was mistaken and the contract with the distributor was FOB destination, then revenue should not have been recognized because the product never made it to the distributor’s facility. This would require a restatement of earnings because the title of goods was still with Biovail.

4.If you were Mr. Maris, in making the stock recommendation choice (signing off on “Sell” versus some other recommendation), other than the accounting issue above, what are the key issues and tradeoffs to consider, especially in light of what had happened to your predecessor Mr. Treppel?

Key issues to considering in making his stock recommendation include Biovail’s treatment of Treppel’s recommendations. Since Biovail had Treppel investigated by the NY State Attorney General’s office, Maris will want to ensure his recommendation has factual backing. The predicament that he’s currently faced with is whether to protect the interest of his own career (by not listing Biovail as a “sell”) versus protecting the interest of the investors that follow him.

Another key issue includes Maris’ belief that Biovail may be participating in “channel stuffing.” If this is the case, he will want to research how Biovail’s customers are reacting to this: Are they typically returning the product? Are they accepting the additional products? Providing transparency on this issue will help to clarify concerns with revenue recognition. Finally, Maris should consider if the contract change from FOB Shipping

Point to FOB Destination was actually made and signed. If there was not an actual revision to the contract, other than the call and email, the contract terms may still be legally FOB Shipping Point.