Bausch & Lomb, Inc. (A), (B), and (C)

Bausch & Lomb, Inc. (A), (B), and (C)

Bausch & Lomb, Inc. (A), (B), and (C)

This essay covers Bausch & Lomb, Inc. (B&L), a company that’s based in Rochester, New York, and which manufactures optical and health care products. It is centered on B&L‘s failure in efforts of implementing a change in its distribution and sales strategy. It proves that materiality in accounting, decisions in revenue recognition, analysis level of the manager and discretion, and regulators play a vital role in the process of financial reporting.

In late 1993, B&L made a change in its distribution and sales strategy. As a result, distributors witnessed lots of conventional lenses inventories passed over to them which B&L rushed to view as revenues. As fate would have it, the optical market took an unprecedented negative turn compelling B&L to recall near every distributor inventory of it despite the fact that there weren’t such terms. Barely two years later, B&L revealed about how its ability to recognize returns based on the unsuccessful strategy compelled the U.S. Securities and Exchange Commission to investigate its accounting practices.

B&L came up with a new tactic whereby it sold and delivered its products to large retail outlets directly while small retail outlets were supplied by distributors. The following questions arise: whether resources can be returned and attention turned to other products, response of retail outlets to distributors dealing with a single product and whether the will be able to deal with large quantities of inventory. For students, it is crucial to know that in business, a strategy precedes the changes resulting from the strategy’s effect on accounting.

For the above transaction to be termed as returns in the financial records of 1993, first it must be determined whether B&L has achieved conditions crucial for earning revenues and then, whether those returns have been got. Thus, the question as to whether the company has achieved the conditions favorable for terming the revenues as in the financial statements is irrelevant since  after shipping its items B&L termed it as revenues, something that is not strange. The aforementioned factor may compel students to believe that the company couldn’t do so as a result of realizing that the strategy was dubious at the end of the year, or, it was an aggressive strategy. Others might view it as a result of declining number of product consumers. Yet, there are those students who may argue that the sales strategy was triggered by the urge to go on witnessing a positive operating performance trend. Students opining that the timeliness factor was crucial for the company assume that other issues apart from timing are not crucial when paying out money owed; subsequently, such students it would enough were the policy change and its effects on sales disclosed.

Yet, students supporting the company’s accounting option in the context also point out absence of formal return policy and the incompatibility of the strategy with the business and its location. However, recognition opponents point out that the suppliers’ inventories increased significantly and that the size factor affects the insolvency of the distributors. Based on the opinion of students opposing the claim that realizability affected the strategy, there lacks feasibility into why distributors  never had a business unlike before which could have suited them better in paying for the inventories—this is because in the optical lens market, conventional contact lenses outnumbered the rest.

To invalidate the opinion that may be held by students that B&L had the advantage of a clean audit in 1993, it does not rule out a situation whereby the auditors may misinterpret the transaction or base decide by using materiality (Miller & Noe, 2000). By students using factoring in arguing for the company, they may make other less knowledgeable students get confused regarding the appropriateness of recognition of revenue on the context of the sales strategy. It is highly recommended that students have a discussion on the aforementioned issues; with one student playing the role of a CFO or auditor while the colleague acts as the divisional president of B&L Company. While the student acting as the divisional president supports his perception of it as revenue using evidence such as an effective sales strategy, shipment of goods to distributors with a long relationship with B&L; the other student counter-arguing as a CFO uses accounting guidelines. Subsequently, a student should play the role of an auditor and the instructor prompts him using evidence such as shipment of goods, presence of signed contracts, and confirmation of the accounts receivable. The both cases should see the CFO or auditor book the revenues and a class poll conducted which, predictably, will see majority of the voters hold the opinion of the transaction being booked as revenue despite feeling chagrined because of its relation to the economics. The other case—the issue of the effect of item proceeds and price on the conventional contact lenses which cost B&L’s tax decrease by $20 million in 1994—could be handled out to students for broaching. However, the case would call for many assumptions and discuss the situation based on the perspective that in 1993, the company used the same strategy and its pretax operating returns rose by a mere 12.1 million. It will offer the students a good case study to discuss the significance of estimating accounting transactions and considering the possibility of flaw. Students discuss how they could have acted were they to be B&L’s CEO. To wrap up it all, an article discussing the same case argues that the sales strategy was a trick used in B&L’s accounting.