Kayla Nguyen

1 November 2019

Accounting and Actuarial Science

Viswanatha, A., & Safdar, K. (2019, November 4). WSJ News Exclusive | Under Armour Is

Subject of Federal Accounting Probes. Retrieved from https://www.wsj.com/articles/under-

armour-is-subject-of-federal-accounting-probe-11572819835.

Research Assessment #5

Brands, like Nike and Adidas, are currently dominating the clothing industry through

their development of what is defined as “athleisure” wear, the dominating trend of the 21st

century. This leaves other brands, like Under Armour and Reebok, to fall short on sales because

of their inability to adapt to the market and produce according to popular demand; their biggest

consumer, teenage boys have found a disinterest in the brand and are promoting more ‘premium’

brands. However, in the case of Under Armour, it was more than the lack of sales that caused

their regression.

Recently, the stocks for Under Armour decreased dramatically with the news of a federal

investigation regarding its accounting practices. They were accused of shifting sales from quarter

to quarter in order to make their brand appear healthier; the prosecutors are conducting both civil

and criminal investigations regarding this controversy and devaluing Under Armour in the

process. Their primary concern lies within the idea of revenue-recognition practices, which is

whether companies record revenue before it is earned or defer dating of expenses to make

earnings appear healthy.

This idea of recording revenue before it is earned is not new information. Companies,

like Enron, are no strangers to claiming profit before it is made, although, they used a technique
called mark-to-market accounting to achieve this. I think that the accounting, in this case, was

strategic in a sense that they were able to create a facade for the company and mask their lack of

profitability. However, that does not take away from the fact that they too fooled investors into

thinking the company was stable. There comes a point where morality and ethics are lost in the

midst of preserving one’s company. The losses regarding the company as a whole are definitely

more dire, but to what extent are people willing to compromise their integrity? It seems that

deception is a big part of business; Enron made the public believe there was no internal

corruption within the fastest growing company in the energy industry. Under Armour attempted

to make their profits appear more acceptable, but compromised their integrity in the long run.

The end result was their report in revenue declines for the fifth straight quarter in their biggest

market, North America.