Introduction Lucent Technologies
Lucent Technology is North America's leading maker of telecom equipment and software, including switching and transmission equipment and business communications systems. Lucent Technologies, started trading publicly in 1996 with an initial public offering that was, at the time, the largest in domestic history (Hayes). In December 1999, Lucent's stock reached a high of $77.78 and was the nation's fourth most widely held stock (Romero and Atlas). But by July 2001, Lucent's stock was trading at $6.43, the SEC was investigating its accounting practices, and several former, high-level managers had been sanctioned by the SEC or were under criminal indictment for wrong-doing while at Lucent (Romero and Atlas). The plunge in stock value (exhibit 1) was primarily the result of a November 21, 2000, announcement in which Lucent said it had to restate its financial statements as a result of an internal investigation revealing accounting irregularities. Lucent's restatement reduced revenues by $679 million (McGough, Bloomberg).
As early as June 2000, media attention had begun to be directed towards Lucent's aggressive accounting policies. A Wall Street Journal article in June, 2000 suggested that Lucent Technologies might be engaging in creative accounting practices, noting that Lucent's receivables were rising at 49% while revenues were rising at only 20% (Wall Street Journal).
Accounting Policy Reporting objectives
Lucent's chief executive Richard McGinn had turned Lucent into a Wall Street star by increasing sales at a double digit pace and was determined to maintain Lucent's growth. Many observers believed that Lucent's sales projections were imposed on sales executives by the chief executive who was intent on maintaining a 20 percent growth rate (Berman and Blumenstein). Don Peterson was appointed the executive vice president and CFO; he reported to CEO Richard McGinn and was accountable for the Corporate Finance Organization. Peterson explained in a...