Disctech Inc Harvard Case Solution & Analysis

Introduction

            Disctech Inc. has been founded in the year 1977 by John Garvey who was an electric engineer by profession and had been working at a large manufacturer of minicomputers and the computer disc memories. John although at a reputed position in the firm wanted to venture his own organization left the firm along with three other employees from the same company.

            Ed Stein born was appointed as the Chief Financial Officer (CFO), Peter Farrell was appointed has the vice president for the Design and Operations and Mary Foley was appointed as the executive vice president for Sales and Marketing for the company Disctech Inc.

            In the initial part of the setup, Disctech majorly spent upon the organizing of the corporation and also building prototypes of the advanced 14 and 8 inch disk. Moreover, with the initial success, the company in 1979 went on to become a public limited company where it offered 3.3 million shares at a base price of $3.00.

            Along with this, John also guaranteed that the sales for the products offered by Disctech are bound to increase and the products manufactured by the company will soon become the industry standards. Moreover, he also announced and predicted that the share price for each unit will increase and go up by 30 percent each year.

            The organization structure at the company was quite organized and simple; the firm basically followed the top down process. John met his two employees Ed and Mary every year to set the sales targets for the coming year. These figures set by the management were then rolled out to each and every employee and the sales department.

            Moreover, to constantly innovate new ideas and improved products, R&D budget was allocated by the company by negotiations amongst Peter and John. The sales team were called upon in the revenue meetings where the targets were given to each team as per there area of interest and the products they sold.

Problem Statement

            The case “Disctech Inc.” basically discusses the situation of the company where it has been facing the problems and issues regarding the fraudulent financial reporting. Along with this, the company and its management is also facing the problem of inadequate reserves for the inventory obsolescence, recording of premature revenue recognition and the possibility of insider trading.

            In such a situation, Rich O’ Donnell who is the chairman of Audit Committee of the company Disctech Inc. has to decide what decision he should present to the board of directors meeting. Along with this, he is also concerned over the inventory management and revenue recognition.

Board of Directors and Audit Committee

            In the current situation of the company, the board of Director at Disctech consists of total seven members, five outside directors and two within the company which include the CEO and the CFO. The meetings within Disctech take place four times a year. However, in the year 1982, a change took place within the firm and Richard O’Donnell was appointed as the chairman of Audit Committee. He was quite proactive and wanted to study all the business methods followed at Disctech. To strengthen the committee he actually wanted to strengthen the audit function and the also improvedupon the hiring process.

            As the case identifies the situation which worried Rich was the fact that most of the committee members who were a part of the audit committee were being influenced by the outsiders. He wanted to engage each director into the business and the decision making; therefore he usually asked a lot of questions from each individual.

Disctech inc Case Solution

Internal Audit and External Audit

            The internal audit department of Disctech consisted of three members. The head auditor has been Doug McAneny, whereas he has two staff members. The three of them have been reporting to the CFO, Ed Stein born.

            The chief Auditor ensured that McAneny attended some meetings of the Audit Committee. Along with this, the external audit of Disctech has been carried by the audit firm Touche, Young and Andersen (TYA).

Situation Analysis

            During the early part of Disctech in the year 1979 to 1982, the sales revenue for the company grows at a rapid rate of 39%. Along with this, the company even increased renowned earning with the total market for the minicomputer disk memories where the OEM prices was $2.1 billion which shows that the company has a lot of improvement......................................

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