See the "Overstock.com, Inc." case for this question.

The Overstock-Grant Thornton dispute was publicly aired via disclosure statements filed with
the SEC. What impact do you believe those disclosures had on the investing public's confidence
in the financial reporting domain and the independent audit function? Were the interactions
between Overstock and Grant Thornton unprofessional or otherwise inappropriate? Explain.
The disclosures impacted Overstock’s trading price. Investors and users of financial statement
still have high expectations that the independent auditors ensure that the financial statements ae
fairly represented. This has influenced audit and management responsibilities and puts more
pressure on partners and executives to fairly represent their financial statements. In my
perspective, Grant Thornton acted inappropriately due to their inconsistent application of the
gain contingency. They did not initially suggest creating an adjusting entry. Therefore, Overstock
issued their 10-k with the $785000 as a gain contingency.
See the "Overstock.com, Inc." case for this question.
Do you believe that the $785,000 amount at the center of the Overstock-Grant Thornton dispute
was material? Defend your answer. What factors other than quantitative considerations should
have been considered in deciding whether the $785,000 amount was material?
The amount could have been material based on materiality calculations and performance
thresholds. By reviewing the financial statements from 2006 I calculated a performance
materiality threshold using 5% and determined that materiality would be a little under $2
Million. $785,000 could possibly have exceeded performance materiality and could be
considered a material amount. Besides quantitative reasons it also important to consider the
extreme growth Overstock.com experienced within a short amount of time. Considering that
Grant Thornton was a new auditor coming after PwC, they should have set a lower preliminary
materiality threshold

See the "Overstock.com, Inc." case for this question.

Briefly compare and contrast the nature and purpose of an independent audit versus a quarterly
review.
a. Both audits and quarterly reviews involve inquiries and performance of analytical
procedures on financial statements. The level of assurance is significantly lower in quarterly
reviews compared to an audit. Audits require determination of ending balances which review
source documents. Annual audits require thorough control testing for public companies and
extremely thorough analysis of the financial statements. The independent audit and quarterly
review both seek to gauge the financial health of the company

See the "Overstock.com, Inc." case for this question.

The SEC requires registrants to have their quarterly financial statements reviewed by an
independent accounting firm but does not mandate that a review report be included in a Form 10-
Q. Under what circumstances must a review report accompany quarterly financial statements in a
10-Q? Why doesn't the SEC routinely require public companies to include their review reports in
their 10-Q filings?

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 According to the PCAOB, a review report must accompany quarterly financial statements in a
10-Q if there is any divergence from GAAP or inadequate disclosures.

See the "Overstock.com, Inc." case for this question.

What is the purpose or purposes of Form 8-K filings by SEC registrants? What specific items of
information must be included in an 8-K that announces a change in audit firms?
The purpose of 8-K filings is to tell users of the financial statements about significant changes to
the company, these include: changes in auditors, changes in executives, bankruptcies, and
determinations that previous financial statements can’t be relied upon. They must disclose why
they are changing their auditors, if they issued adverse or disclaimer of opinion, and if there were
disagreements on accounting principles.

ee the "Overstock.com, Inc." case for this question.

Do you agree with the accounting treatment that Overstock typically applied to the revenues
generated by its "Partner" line of business? Why or why not?
I do not agree with the accounting treatment applied because there is possibility for inappropriate
revenue recognition. When referencing the 10-K report I noticed there was no unearned revenue
listed, I’m wary of the cost of goods sold reporting as well.

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