To comply with accounting principles, a company that engages in software development must either expense the cost
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To comply with accounting principles, a company that engages in software development must either “expense” the cost (record it immediately on the company’s financial statement) or “capitalize” it (record it as a cost incurred in increments over time). If the project is in the pre- or post-development stage, the cost must be expensed. Other wise it may be capitalized. Capitalizing a cost makes a company look more profitable in the short term. Digimarc Corp., which provides secure personal identification documents such as drivers’ licenses using digital watermark technology, announced that it had improperly capitalized software development costs over at least the previous eighteen months. The errors resulted in $2.7 million in overstated earnings, requiring a restatement of prior financial statements. Zucco Partners, LLC, which had bought Digimarc stock within the relevant period, filed a suit in a federal district court against the firm. Zucco claimed that it could show that there had been disagreements within Digimarc over its accounting. Is this sufficient to establish a violation of SEC Rule 10b-5? Why or why not?
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Five elements are required to establish a violation of Rule 10b5 A plaintiff must show 1 A material ...View the full answer
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