Profit Organization Interest Identify the Core Functions

¶ … Profit Organization Interest

Identify the core functions of each department, their strengths and weaknesses, and make recommendations for improvement, as appropriate.

In the case of Rambus (the for profit organization we are investigating) there are conflicting accounting standards between: pro forma and generally accepted accounting principles (GAAP). As Rambus is focused on three different areas to include: Digital Edge Clocking, the production of DRAM and LED chips. The strengths of these different segments are: the company is major component supplier to some the major electronics / computer manufacturers and they are diversified between different areas inside semi-conductors. The weaknesses include: they are using a pro forma based accounting system, they have no effective internal controls and their business model is not protected against sudden shocks to the economy. Possible recommendations to improve these issues are: the company should reduce their overall amounts of debt, they should switch to GAAP-based standards and they need to have better oversight surrounding internal compliance controls. ("Rambus 10Q," 2010) ("Rambus 10K," 2009)

Identify and describe the underlying problem or conflict

The area of conflict that Rambus is facing is that there is a lack of internal controls for employee compensation. In this case, the company was improperly awarding employees stock options, where the fair market value was above the price of the common stock. This is a conflict of interest, as it not recording this as an expense, which means that earnings are falsely being inflated. At the same time, it is giving these employees the advantage of: purchasing call options that are at lower than the price of the stock. This is problematic, because the pro forma accounting standard that the company is using allowed for more flexibility, in determining what transactions would be recorded. When you put this with the lack of internal controls, it means that this created a situation where the company reported higher earnings than they actually made for several years. (Mullins, 2010)

Compare the alternative courses of action

The alternative course of action is that the company could: restate their earnings, switch to GAAP standards and improve compliance / monitoring. Once this took place, it would ensure more stability in Rambus' bottom line.

Explain the effects at issue

These issues have the ability to create a situation where the company could face significant amounts of shareholder law suits. At the same time, they more than likely would face an SEC investigation along with one being conducted by the many different states. This will have a negative effect upon the company's reputation and earnings.

Recommend options that would be consistent with the organization's accounting practices, accounting processes, and accounting-related departments.