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BKAL 3063

INTEGRATED CASE STUDY


BIOVAIL CORPORATION:
REVENUE RECOGNITION AND FOB
SALES ACCOUNTING
EXECUTIVE SUMMARY
Largest publicly traded pharmaceutical
companies.
Expertise in the development and large-
scale manufacturing pharmaceutical
product.
In 2003, truck carrying shipment involved
in multi-vehicle traffic accident.
Accounting policies based on revenue
recognition.
Freight On Board (FOB) :
FOB shipping point
FOB destination
STATEMENT OF THE PROBLEM
Revenue recognition.
misscommunication between the staff
misstatement to recognize either FOB
shipping point or FOB destination
Overestimated the products in trucks
revenue overestimated by $5 million
CAUSE OF THE PROBLEM
Revenue recognition
Four conditions must be met.
1. Persuasive evidence of an arrangement
exists.
2. Seller's price to the buyer is fixed or
determinable
3. Collection is reasonably assured

4. Delivery has occures or services have been
rendered
FOB shipping point:
recognize revenue at the moment when the product
leaves Biovail shipping docks at the warehouse.
FOB destination:
recognize revenue at the moment when the product is
delivered to the Distributor's premise.

DECISION CRITERIA AND
ALTERNATIVE SOLUTIONS
Enhance the Internal Control
make sure employees to be employed
independent and free from bias
manage risks by determine level of risk
tolerance
periodic testing of effectiveness and efficiency
RECOMMENDATION
Pay attention to the content of the
agreement
Alert to the revenue recognition - hire
another staff or professional staff
Avoid fraud