analyzing-liabilities-executive-summary-accounting-502 (1)

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Grand Canyon University *

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502

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Accounting

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Apr 3, 2024

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lOMoARcPSD|34045651 1 Running head: ANALYZING LIABILITIES Analyzing Liabilities Executive Summary Celes Mickle Grand Canyon University: Acct-502 November 12, 2020 Downloaded by Kevin Goffney (kevingoffney1986@gmail.com)
lOMoARcPSD|34045651 ANALYZING LIABILITIES 2 Analyzing Liabilities Executive Summary Cardinal Health, established in 1971, has emerged as a key player in the healthcare industry, offering a wide range of services and products to enhance patient care globally. According to Averkamp (2020), the term "liability" in accounting refers to obligations or debts owed by a company. With its headquarters in Dublin, Ohio, Cardinal Health operates across more than 60 countries and territories, positioning itself as a prominent healthcare services and products provider. The purpose of this paper is to discuss the justification that could be given for deducting the expected litigation from the cost of goods sold and explain why Cardinal Health chose this alternative rather than reporting it as a nonoperating item, explain what the senior Cardinal Health meant about, “We do not need much to get over the hump, talk about what Cardinal Health did to get into trouble with the SEC, justify the timing of the $10 million and $12 million gains and explain how Cardinal Health’s senior managers defend these decisions, and discuss whether the actions of Cardinal Health senior managers were so wrong that they justify the actions of SEC, and classify Cardinal Health’s behavior on a scale from 1-10, with 1 being relatively harmless, and 10 being downright fraudulent. Discuss the Justification that Could be Given for Deducting the Expected Litigation from the Cost of Goods Sold Cardinal Health deducted the expected litigation from the cost of goods sold because they wanted a bigger payout (Young, S. D., Cohen, J., & Bens, D. A., 2019). Cardinal Health’s justification behind wanting a higher payout was because if they would have documented the cost of goods sold correctly on their financial statements for their auditors to see it they would Downloaded by Kevin Goffney (kevingoffney1986@gmail.com)
lOMoARcPSD|34045651 ANALYZING LIABILITIES 3 have not received a bigger payout. Cardinal Health did not realize that they would not get caught for not reporting their sales on their financial statements correctly. They thought that they could get a bigger payout and not have to submit the valid information on their sales for the Internal Revenue Service. Several times Cardinal Health did not document their cost of goods sold properly on the financial statements. The Cardinal Health had a settlement against them for not adequately reporting their cost of goods sold. They did not want to agree with the settlement the first time. The second time Cardinal Health was advised about the settlement they agreed to the $35 million fine for not properly reporting the cost of goods sold (Young, S. D., Cohen, J., & Bens, D. A., 2019). Furthermore, Cardinal Health wanted to cover an expected shortfall in the earnings and that is why they did not want to show the cost of goods sold on the line in the financial statements (Young, S. D., Cohen, J., & Bens, D. A., 2019). If Cardinal Health would have adequately reported the cost of goods sold on the line in the financial statement they would have not had a bigger payout in their earnings. Why Cardinal Health chose this Alternative Rather than Reporting it as a Nonoperating Item Cardinal Health chose this alternative rather than reporting it as a nonoperating item because they wanted a bigger payout (Young, S. D., Cohen, J., & Bens, D. A., 2019). Also, Cardinal Health chose this alternative rather than reporting it as a nonoperating item on the financial statements because they wanted it to be as a passed adjustment (Young, S. D., Cohen, J., & Bens, D. A. 2019). They did not want anyone to notice that it was a passed adjustment and they wanted the auditors to put it as a cost of goods sold and not report it properly on the financial statements. The auditors explained to Cardinal Health that the cost of goods sold was supposed to be put on the financial statements as a nonoperating item. Cardinal Health disagreed with the auditors twice. Both of the auditors that looked at Cardinal’s Health financial statements Downloaded by Kevin Goffney (kevingoffney1986@gmail.com)
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