The Ligand Company violated U.S. accounting standards and concepts, specifically U.S. GAAP when it understated its sales returns to present a better financial picture of the company. The research focuses on the Ligand violations of U.

S. consistency, comaparability, and fair presentation standards and concepts (Bragg, 2007). The research focuses on the criticism on PCAOB for being too stringent.

The financial statements must display the fair presentation of the organization’s business activities. International accounting standard 18 focuses on revenues. Revenue is income that is precipitates from the daily business activities of the company.

Revenue is recorded when it is probable that future economic benefits will flow into the coffers of the company and the benefits can be measured (Bragg, 2007). Likewise, revenue represents the gross inflow of benefits from the daily business activities of the company. In this regard, sales return is a necessary accounting entry that reduces revenues to its net realizable.

Gross sales less sales returns produces net sales; net sales is the revenue that represents the gross inflow of benefits from the company’s daily business operations. Likewise, international accounting standards 1, preparation of financial statements, discusses the intricacies of recording business transactions, including when, how, and how much should be recorded in terms of sales returns ( Ligand failed to comply with the accounting standard and concept specially IAS 18 and IAS1. Ligand underestimated its sales return figures to show a fraudulent net revenue figure of only 2.5%. Ligand should present the real sales return figure which is higher.

The higher sales return figure would reduce net revenues; this true net revenue estate presents a less favorable picture of Ligand when compared to the fraudulent net revenue shown in the Ligand financial statements. Fazio should use realistic figures such as the forecast done by Fazio’s auditing staff shown to be from 13% to 20%. Consequently, Fazio should not issue a non qualified opinion (Moeller, 2008). In response to the understatement of the sales returns, the external auditors should recommend an adjustment to the sales return figures from the erroneous 2.5% to the realistic figure; the realistic figure is from13% to 20%. Failure to comply with the audit recommendations would force the external auditors to avoid issuing a nonqualified opinion (Delaney &Whittington, 2010).

From its creation, the PCAOB had many criticisms from many affected sectors, especially the external auditing firm. There have been many complaints directed at the Public Company Accounting Oversight Board. One of the major criticisms is that the PCAOB’s issuance of AS2.

This is a 150 page auditing standards that forces external auditors to metamorphose into a more conservative type of audit program when handling each audit client. Another major complaint is that AS2 does not explain in detail how publicly listed companies establish a “fair” internal control system (Moeller 2008). Likewise, the PCAOB has forced external auditing firms to increase its audit expenses; the auditing firm must increase its audit time and audit program to ensure a better audit work as compared to the less stringent auditing program prevailing prior to the PCAOB and Sarbanes –Oxley Act. The PCAOB introduced the stricter audit policies to prevent a repeat of the Enron, WorldCom, and other accounting scandals where the external auditors connived with their clients to present fraudulent financial statements. Many audit companies complained that PCAOB –prescribed auditing standards were too cumbersome and expensive (Daelen 2010). The PCAOB should implement some measures to improve the efficiency as well as effectiveness as a Sarbanes Oxley Act –created auditing oversight body. The PCAOB should hold regular meetings with representatives from all affected sectors of society, especially the external auditors.

The PCAOB body should taper its stringent auditing policies to ensure the survival of the auditing firms. In addition, the PCAOB should openly receive suggestions from auditing firms and the client firms as basis for issuing future audit –related policies and procedures. Briefly, the Ligand Company violated U.S. accounting standards and concepts, specifically U.S.

GAAP by understating sales returns. The external auditor required adjustments to correct the fraudulent Ligand Company financial report. The PCAOB has been criticized for being too stringent on the auditing firms.

Indeed, financial statements should present the fair presentation of the organization’s business activities.


Bragg, S. (2007) Wiley GAAP Policies and Procedures. New York, J Wiley & Sons Press. Daelen, M.

(2010) Risk Management and Corporate Governance. New York, Edward Press. Delaney, P., Whittington, R., (2010) Wiley CPA Exam Review 2011: Auditing and Attestation. New York,J. Wiley & Sons Press.

Moeller, R. (2008) Sarbanes -Oxley Internal Controls. New York, J Wiley & Sons Press.


I'm Erica!

Would you like to get a custom essay? How about receiving a customized one?

Check it out