Using Case Materials to Research Professional Standards on Revenue Recognition Issues

Authors: Krishnan, Sudha; Mintz, Steven M.
Source: American Accounting Association
Year: 2007
Company Name: MicroStrategy, Inc.

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Abstract:

MicroStrategy, Inc. is a software company listed on NASDAQ. Since the company came out with an initial public offering (IPO) in June 1998, it has always been identified as a successful, growing company with positive net income. On March 20, 2000, the company announced that it would restate its financial statements for all years since its IPO. This announcement caused its share price to fall 60 percent in one day. The case summarizes management's actions and asks you to identify issues relating to revenue recognition policies under generally accepted accounting principles (GAAP). This case discusses accounting fraud at MicroStrategy a high-tech company that manipulated earnings by prematurely recognizing revenue on software sales. The case requires students to analyze several sale transactions with respect to accounting rules for revenue recognition. It is especially appropriate for undergraduate accounting courses at the intermediate and advanced levels and graduate courses in financial reporting.