Logitech International was charged by the SEC for accounting fraud, specifically for inflating earnings and using the improper accounting. The company agreed to a $7.5 million settlement with the SEC. The former VP/Controller and Director of Accounting agreed to civil penalties for their roles in the fraud, mostly due to knowing about it and failing to stop it. The company was charged with deliberately marking down write-offs relating to components of a failed product. This overstated their 2011 and 2012 income by $30.7 million. In addition, company accountants raised concerns about how the company was accounting for warranties. The executives chose to ignore the concerns and keep using the improper method. Finally, the company failed to record revenues in 2009 to it's largest wholesale distributor.
The case was just announced this past April, so the outcome has not been decided yet. The company has agreed to the $7.5 million settlement, and the executives have agreed to fines, and the former CEO agreed to return compensation and stock bonuses even though he was not implicated in the fraud.
An in depth audit of the company would have revealed the fraud much sooner. It would have revealed the improper accounting method, the overstated income, and other issues long before it actually came out. Since SOX 2002, auditors are required to sign off on the accuracy of financial statements. If this had been done properly, the auditor would have raised grave concerns with the financial statements being put out by the company, raising investor concerns.
Question
So my question here is what may have been the motivation for this accounting fraud and then, if you had a chance to notice over the investigation and presettlement and post-settlement, how has the market responded during these periods? Keep in mind the size of the fraud and penalty plays a role. Also, an intangible factor of corporate governance plays a role in valuing companies. More later on this but I am just wanting to think about the fraud triangle and implications. Think about the impact on stakeholders.