2010 a news article ran related to Clever Corporation's financial irregularities.

Required

a. The article reports that on February 23, 2019, Clever Corporation disclosed that it had overstated profils of the form by $500 million. The market value of this firm plunged by 63% on the same day

Discuss why share prices of Clever Corporation fell so sharply on the day of its announcement of overstated profits 

b. This article sharply criticizes certain accounting accrual practices of Clever Corporation. The article outlined that firms that buy in bulk including Wal-Mart get discounts from suppliers if they meet sales targets. The issue is how those rebates are accounted for. The prudent practice is to wait until the targets are met. Falling firms and now Clever Corporation, appear to have booked these payments before they were earned. Clever Corporation may even have booked entire rebates as profit in the first year of multi-year agreements or simply made them up.

Discuss how the iron law of accrual reversal makes this practice (of recognizing rebates in income before they are earned) unsustainable in the long run. 

c. The article reported that Clever Corporation has been accused of keeping billions of dollars of debt off its balance sheet.

Identify the effect, if any, of Clever Corporation's off-balance-sheet debt on its reported shareholders' equity and net income. Indicate whether these two items are understated, overstated, or remain the same, as a result of its off-balance-sheet debt.

Answer rating: 100% (QA)

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