Ussc

In: Business and Management

Submitted By joy1999
Words 5258
Pages 22
CASE 1.10

UNITED STATES
SURGICAL CORPORATION

Synopsis

In less than two decades, Leon Hirsch transformed a small company with four employees and one product into a large and very profitable publicly owned firm that dominated the relatively small, but important, surgical stapling industry. In fact, Hirsch's company, United States Surgical Corporation (USSC), literally created the surgical stapling industry in the 1960s. Like many small companies that experience explosive growth, USSC eventually became a captive of its own success. Faced with the need to maintain the company's rapid growth rates in sales and profits to continue attracting capital from outside investors and creditors, Hirsch and his associates began using several creative accounting techniques to window dress USSC's financial statements. In 1985, the Securities and Exchange Commission (SEC), after a lengthy investigation, concluded that USSC management had deliberately and materially overstated the profits of the company for the period 1979-1982. USSC was ordered to revise and reissue its financial statements for those years, resulting in a $26 million reduction in its previously reported earnings. Additionally, Hirsch and other USSC executives were forced to repay large bonuses they had earned on the overstated profits.
Ernst & Whinney, USSC's independent audit firm during the late 1970s and early 1980s, was criticized by the SEC for failing to discover the various methods used to manipulate the company's reported operating results. Among these schemes were recording shipments of product to sales employees as consummated sales transactions, improperly capitalizing litigation expenses in a patent account, and retaining the cost of retired assets in the company's financial records. The principal focus of the SEC investigation and its subsequent enforcement release for the…...

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