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The Molex Inc Case Study

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Submitted By carmen20
Words 1240
Pages 5
Introduction

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.
Financial reporting Problem

The financial reporting problem at Molex was that, “the profit on inventory sales that the company made between its subsidiaries but which had not yet been sold to external customers had not been excluded from the company's consolidated earnings and also in the company's inventory (Palepu & Healy, 2008).” Basically, Molex reported additional inventory and earnings from the internal inventory sales. As a result, the company’s earnings, net income, and inventory were overstated “by $8 Million before taxes and $5.8 million after taxes, with $3 million before taxes and $2.2 million after-taxes was from year ended June 30, 2004.” As it was stated on page 12-27 of the Business Analysis and Valuation applications, “The main problem came from the CEO and CFO decision to not disclose this error on the financial statements that were released on July 21, 2004 (Palepu & Healy, 2008).” The auditors were not thrilled about the poor (of) decision of King and Bullock to withholding this information from them. As a result, the auditors no longer have trust on the CEO and CFO and requested that they should be fired and replaced.
Problem Correction

The error should’ve been reversed when it occurred. The mistake was an overstatement of 8 million before taxes and

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