The SEC is taking renewed aim at earnings management, and this
time it's not just improper revenue recognition.
Both in its recent enforcement order against Marvell Technology
Group – imposing s $5.5 million fine and a cease-and-desist
order – and in its on-going action against Under
Armour,1 the SEC has focused on what,
anecdotally, is not a terribly uncommon practice –
accelerating (or "pulling in") sales from a future
quarter to the present in order to "close the gap between
actual and forecasted revenue."2 In both cases, the
schemes consisted of offering various incentives, such as
"price rebates, discounted prices, free products, and extended
payment terms"3 to entice customers to accept products
in the current quarter that they would not need until the next. In
an environment of declining sales, these inorganic efforts to meet
earnings numbers allegedly misled the market about the direction of
the business.
