Biovail Case Essay

In the case when ownership changes hands upon receipt of the product at the distributor’s facility (FOB destination), the second condition for revenue recognition under SAB101 has not been met. In this case the company would not recognize revenue because delivery did not occur. Part 3: The shipment left Biovail on September 30, 2003, which is in the 3rd quarter. Under FOB shipping point guidelines it would be correct to recognize revenue for the shipment in the Q3 report. Assuming revenue associated with this shipment was included in Q3 earnings as originally stated, no further impact. Under the FOB destination guidelines it would be incorrect to recognize revenue. In that scenario the truck does not reach it’s destination in the 3rd quarter and thus no shipment is made and revenue should not be recorded. Assuming that this shipment would take longer than 1 day to reach the distributor, based on the fact that it is in Chicago on 10/1, this shipment shouldn’t have been planned as revenue in quarter three anyway. The accident will have an impact on Q4 revenue. Part 4: Biovail’s treatment of analysts who cover their stock is concerning. It is still unclear whether Treppel was correct or too harsh, but Biovail’s fierce retaliation against Treppel highlights their willingness to go to great lengths to suppress any negative analyst reports. This combined with, the lack of clarity around their accounting practices and conflicting arguments from their distributor lends us to question their integrity. This would create a difficult environment for an analyst to create a unbiased report and significantly discourages us to be an analyst covering this company.