Lernout & Hauspie
Question 1 : Is there anything unique about L&H that made the company prone to engage in fraudulent accounting practices?
The unique characteristics in L&H that made it prone to engage in fraudulent accounting practices were the rapid expansion and acquisition of companies beyond their boundaries, and the inability to oversee these operations. Another important factor that stands out is the lack of ethical values portrayed by the founders of L&H. The top management did not set code of ethics, but instead wanted to maximize their future software value. Mr. Hauspie’s creative but legally acceptable financing plans help him to retain control of the company by selling minority interests. The desperate ambition to succeed together with the accounting knowledge, the company was in a prime position to engage in fraudulent practices.
Engage in fraudulent accounting practices:
L&H Speech Products is a high technology company which produces speech technology software and products. Being in the competitive software developing industry together with the pressure of The Wall Street Journal, L&H was very keen to meet the desired earning targets and this made L&H susceptible to accounting fraud in order to mislead investors. In 1998, investors ignored financial analysts’ warnings and applauded the acquisition of Dictaphone. But after they were able to get a clearer view of L&H's financial performance as the company was then required to oblige to file detailed accounts with the Securities and Exchange Commission (SEC), the investors began to dump stock. The fact that L&H was listed on the Belgium stock exchange, where the rules for reporting and listing are much less stringent than in United States, made the company prone to engage in fraudulent accounting practices as the chances of being detected were minimal. The organizational factors are identified as likely the contributors to L&H's fraudulent accounting practices. Its weak control performance as clearly indicated in
The unique characteristics in L&H that made it prone to engage in fraudulent accounting practices were the rapid expansion and acquisition of companies beyond their boundaries, and the inability to oversee these operations. Another important factor that stands out is the lack of ethical values portrayed by the founders of L&H. The top management did not set code of ethics, but instead wanted to maximize their future software value. Mr. Hauspie’s creative but legally acceptable financing plans help him to retain control of the company by selling minority interests. The desperate ambition to succeed together with the accounting knowledge, the company was in a prime position to engage in fraudulent practices.
Engage in fraudulent accounting practices:
L&H Speech Products is a high technology company which produces speech technology software and products. Being in the competitive software developing industry together with the pressure of The Wall Street Journal, L&H was very keen to meet the desired earning targets and this made L&H susceptible to accounting fraud in order to mislead investors. In 1998, investors ignored financial analysts’ warnings and applauded the acquisition of Dictaphone. But after they were able to get a clearer view of L&H's financial performance as the company was then required to oblige to file detailed accounts with the Securities and Exchange Commission (SEC), the investors began to dump stock. The fact that L&H was listed on the Belgium stock exchange, where the rules for reporting and listing are much less stringent than in United States, made the company prone to engage in fraudulent accounting practices as the chances of being detected were minimal. The organizational factors are identified as likely the contributors to L&H's fraudulent accounting practices. Its weak control performance as clearly indicated in