Revenue Restatement at Bristol-Myers Squibb: Justified or Not? Harvard Case Solution & Analysis

Revenue Restatement at Bristol-Myers Squibb: Justified or Not? Case Solution 

Problem statement

The case study requires to identify what steps and measures should have been taken in the earlier stage so that there will have not be such fraudulent sales recognition occur. Furthermore, even if this activity is going on, however it is running for many years. These should be identified by the audit department of the company or external auditor. There might be indicators or red flags present that should have triggered such fraud.

Company’s sales policy

The company has a mission statement that it has the responsibility and it will honor the responsibility to increase the value of the share of its share holders and continue the business with steady growth, innovation and significant research and development.
The company’s policy on revenue recognition prior to reinstatement was “Revenue Recognition—that is the revenue from the sales, which is recognized upon shipment to customers.

Facts of the case

BMS distributes its manufactured medicines throughout the U.S through its chain of wholesalers. Majorly 4 wholesalers are involved in the distribution of company’s 85% pharmacy products. These wholesalers then deliver these products to the smaller retails, store and hospital medicals.

The company adopted a policy to provide financial incentives to encourage wholesalers to buy the products more than they needed. This policy has been adopted so that the company may show increased sales and subsequently increased growth.As a result of this, the company started reporting higher sales and earnings. Moreover, this activity is known as channel stuffing....................

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