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Channel Stuffing

   Also found in: Wikipedia 0.01 sec.
Channel Stuffing
An illegal practice in which a company willfully sells more of its product to distributors than the distributors can sell to customers. The company makes these sales on credit, which temporarily boosts its accounts receivable and by extension its current assets. This makes the company look healthier than it really is which can raise its stock price. Eventually, when the distributors are unable to sell the product they return it to the company instead of paying, which reduces the accounts receivable and brings the company's balance sheet in line with reality.
channel stuffing
Artificially inflating current sales and earnings by shipping more goods than would normally be ordered. For example, an appliance manufacturer may inflate revenues and earnings in the current accounting period by shipping to retail stores more refrigerators, stoves, and dishwashers than the stores are likely to sell. The practice of channel stuffing borrows revenues and earnings from the future because overstocked customers will reduce orders in future periods.
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In addition to the outside auditors, the CEO and CFO, the audit committee should consider interviewing, at least once a year, employees and service providers in these key roles: * controller and assistant controller (ask if there are any accounting policies or procedures with which they are uncomfortable); * head of sales (ask if there are any side deals with any customers, channel stuffing, so called "round-trip" sales, etc.
Ten best practices for audit committees: the public company audit ... by Lipman, Frederick D. / Financial Executive
It's a revenue recognition case alleging that channel stuffing, side deals and other arrangements artificially inflated revenue.
Public defender: Former Assistant U.S. Attorney provides an inside ... by Ascierto, Jerry / California CPA
He and Krensavage accused the company of channel stuffing.
Tyrannous Rx: a formula for making sluggish sales seem healthy ... by Speizer, Irwin / Business North Carolina
 
 
 
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