GAAP, there are four conditions in order to recognized revenue. First, Persuasive evidence of an arrangement exists. We can see that there must be an arrangement between Biovail and distributor. Third, collectability is reasonably assured.
Fourth, Delivery has occurred or services have been rendered.
From here, we could recognize revenue of the company according to FOB. FOB shipping point, title to the property transfers to the buyer when it leaves the shipping dock and therefore revenue should be recognized at that point.
With FOB destination, title does not transfer to the buyer until they receive the goods and thus revenue is not recognized until that point 3. How does the accident affect the stated revenues under different FOB contract structures?
Then, overstating revenues and net income on financial statement should not have happened.
Would you want to be an analyst covering this company? Yes, I am concerned especially about the downgraded stock recommendation that was given to Biovail. However, I would not be an analyst covering the company because there were too many misleading information in the company that would cause me as analyst to formulate wrong decision.
Moreover, it might also ruin my reputation as analyst if I formulated wrong decision.
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