Question

Under Armour Inc. shares fell nearly 19 after the company confirmed it was the subject of a federal Investigation into its accounting practices. Executives declined on an earnings call Monday to provide details about the probe or explain why Under Armour hadn't previously disclosed its existence, even though they had been responding to document requests for more than two years "We have been fully operating with these inquiries for nearly 2 Under Armour CFO David Bergman said. "We firmly believe that our accounting practices and disclosures were appropriate. Read more Under Armour Is Subject of Federal Accounting Probes Under Armour Founder Kevin Plank Steps Aside as CEO Meet Under Armour CEO's Unusual Adviser: An MSNEC Anchor On Sunday. The Wall Street Journal reported that the Justice Department and the Securities and Exchange Commission are examining the sportswear maker's revenue recognition practices and whether it shifted sales from quarter to quarter to make them appears After the Journal published the article, Under Armour said it is cooperating with Investigators and that it began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related di r es Under Armour's Class A share closed at $17.14 on Monday, do 18. On the earnings call, an analyst asked how significant the investigation was and why investors were just hearing about it now, Mr. Bergman, a longtime company executive who took over CPO in b ary 2017, said the company was prohibited from discussing the matter. "So now we're focused on 2020 and beyond." he said. On the same call, Chairman and CEO Kevin Plank didn't address the matter. Justice Department prosecutors are conducting a criminal inquiry into the matter in coordination with evil investigators at the SEC, the Journal reported. Spokespeople for the Justice Department and SEC declined to comment. Public companies aren't required to disclose every regulatory orlawn m ent investigation. The decision about what to tell shareholders turns on the magnitude of the problem and how likely it is to become a legal liability Over two years a long time to make medico especially if the company was told it was start of the criminal probe, said John Coffee Jr., an expert in securities and corporate law at Columbia University Law School. "If the Department of Justice was raising these questions and suggesting they saw evidence of a criminal nature, it is dang not to disclose,"ME Coffee said.

Answer 1

a. Nature of probe is criminal and is conducted by the Justice Department and Securities and Exchange Commission

b. Following generally accepted accounting policies may have been violated:

1. Revenue recognition - Revenue should be recognised when the risks and rewards of ownership have been transferred to the customer. However, based on the investigation it was found that revenue at times was recognised before earning the same (i.e sale is made or goods have been transferred).

2. Expenses should be recognised upon utilisation of the services on an accrual basis, however, we understand the Company at times have deferred the recording of expenses to indicate better profitability

c. Brief history of Under Armour:

1. Feb'16: Mr. Dickerson quits as CFO and Mr. Malloy is appointed as the new CFO

2. Prior to '17: The Company was enjoying year on year sales growth of 20%

3. Jan'17: Sales growth of 12% was observed in Q416 and Malloy quits as the CFO

4. Dec'17: Mr. Bergman, who was appointed as acting CFO since Feb'17 was appointed as permanent CFO

5. Jul'17: Under Armour started responding to federal investigation with documents

6. Q4'17: Profit of $102m was recorded as compared to $75.3m in Q3'16. Sales fell by 1% to 1.43billion.

d. Effects of changes in CFO:

1. Employees can be apprehensive upon multiple changes in senior leadership. Layoffs and reductions in force are among workers’ fears when changes occur.

2. Senior leadership changes affect business operations on a temporary basis, if not streamlined

3. Loss of time due to transformation from one leader to another

Please add sub question 5 as a separate question - We are instructed to answer 4 questions at maximum.