Financial Accounting
Krispy Kreme is a doughnut wholesaler and retailer which started in Winston-Salem, North Carolina in 1937. The company saw significant growth over the years and became one of the fastest growing fast food chains in the country. It had hundreds of franchises in many states due to the success of their business. The company was in a good financial position until the 2003/2004 fiscal year when the company overstated its financial statements purposefully to match the projections made by Wall Street due to decrease in sales. The company overstated its financials between $3.8 million and $4.9million on its profit. The company’s profit totaled $58million on the misstated financial statement in the 2003/2004 fiscal year (NBCNews.com, 2005).
The main reason why the company misstated its financial statement was to meet the projections created by Wall Street. Many parts of the financial statement were over stated in cents to millions of dollars. This hurt the company’s reputation to investors. The overstated financial statements were also to attract investors and to show that the company performed as well as the projections by Wall Street stated. The SEC (Securities and Exchange Commission) caught up with Krispy Kreme and they were asked to restate their financial statement. The Chief Executive of Krispy Kreme at the time, Scott Livengood and other executives were the main influence of overstating of the financial statements. The executives of Krispy Kreme saw that the company’s sales starting to slow down as of January 2003 and they resided to take necessary action by changing the financial statements to match the projections made by Wall Street to increase profits, net income and other important areas that investors, analysts and the general public wants to see. The executives of Krispy Kreme had no integrity as they overstated the financial statements to lure investors and the general public, as well as breaking GAAP rules. Krispy Kreme did not only lose their reputation but also their stock price dropped significantly and their franchises started failing (NBCNews.com, 2005).
The executives of Krispy Kreme failed to exercise integrity over the actual financial statement of the company. This was unethical on the path of the executives and everyone else who was involved in this act. Overstating of financial statements is wrong and unaccepted by GAAP and the SEC. The executives of Krispy Kreme are to be blamed for this incident because they are the final people to approve the company’s financial statements.
Work Cited
Krispy Kreme to restate some 2004 earnings. (2005, January 5). Retrieved June 2,
2014, from NBC News.com website: http://www.nbcnews.com/id/6784620/ns/
business-corporate_scandals/t/krispy-kreme-restate-some-earnings/#.U4z2gPldXy8
