Question

When Cutter & Buck revealed two weeks ago that it padded sales figures in 2000 by recording $5.8 million in shipments that were mostly returned, the news came as a surprise to many investors. But it wasn't the first time the Seattle sportswear retailer's shipping and accounting practices have been called into question. Shortly before co-founder joey Rodolfo left in 1997, he accused the company of shipping orders months before customers were expecting them, a method of prematurely booking sales. Some customers and former employees say early shipments persisted for years after Rodolfo raised the issue. And late last week, Chief Executive Fran Conley said an internal investigation has found that early shipments were more extensive than I had known" and may force the company to further restate sales figures. Shipping and booking orders ahead of schedule to meet short-term sales goals a practice sometimes called channel stuffing - is not, by definition, illegal. But by essentially borrowing from future sales to claim bigger current sales and profit, it can be used to boost a company's bottom line and create a misleading appearance of growth for investors. This article provides a good way to introduce the topic of channel stuffing. When a company stuffs the channel, it ships inventory ahead of schedule, filling its distribution channels with more product than is needed. Since companies often record sales as soon as they ship products, channel stuffing can make it appear that business is booming 1. Is this practice legal and why? 2. Is it an acceptable practice according to GAAP and why? 3. Is it an ethical practice or not and why?

Answer 1

Answer:

1)

Channel stuffing isn't illicit as indicated by any statue. Channel stuffing is a worthy business methodology now and again.

Eg: If an organization have enormous stock of inferior goods (like vegetables, expiring medicines within a short period). In such cases, channel stuffing is a satisfactory business methodology. Thus, it isn't illegal.

2)

Channel stuffing is a business strategy if there should be an occurrence of inferior products as we said before. In any case, it is a device/method of window dressing. Window dressing implies making a better financial situation in balance sheet, however the fact of the matter is totally different. Window dressing is certifiably not a Generally Accepted Accounting Practice(GAAP). Thus, channel stuffing isn't a GAAP.

3)

If there should be an occurrence of inferior goods, it is a moral business strategy to diminish loss and helpful to the financial specialists or investors, lenders and other stakeholders too.

In any case, if channel stuffing is utilized to make huge sales and huge income for earning commissions, credits, investments and anything by way for window dressed fiscal summaries, at that point it's not an moral practice or ethical practice. It isn't valuable for any quick stakeholders in long-run.