During the boom of the 1990s, Computone Corporation was a high‐tech company with viable hardware and software products. The company struggled financially, however, in this very competitive industry. This case demonstrates how the company employed earnings manipulation techniques that resulted in violations of GAAP through improper revenue recognition. Developed from SEC Enforcement Releases, the case demonstrates the SEC's willingness to prosecute corporations and individuals involved in fraudulent financial reporting. The case requires you to analyze the impact of improper revenue recognition on financial statements and to identify risk factors that may have provided incentive and opportunity to engage in fraudulent financial reporting. In addition, the case asks you to consider the potential effect of the Sarbanes‐Oxley Act of 2002 and discuss corporate governance issues.
