Biovail Corporation's Overestimation Issue

Sub issue:
Other than having fraud conducting of revenue recognition, Biovail Corporation also has overestimated the amount of Wellbutrin XL on the truck. The company estimated that revenue associated with this shipment was in the range of $10 million and $20 million and confirmed that the manufacturing cost value of this shipment had been fully insured.

Essay Example on Biovail Case

The trooper estimated that the truck was about one-quarter full. After the investigation done, the analyst stated if there had been $20 million worth of Wellbutrin XL pills on the truck, it would have been full or nearly full.

In addition, Biovail Corporation also has expired of Legacy product patents.

The Legacy product portfolio included the well-known brands Cardizem CD, Ativan, Vasotec, Vaseretic and Isordil. These products were not actively promoted by Biovail and represented non-core assets for which patent protection had expired. However, sales of Cardizem CD have represented 40% of product sales at Biovail. Biovail Corporation also having problem in report the revenue because it based on channel stuffing.

Channel stuffing is the action sends the distributor more product than they are able to sell in order to increase earning. Distributors hold the excessive amount of product.

The conflict of the self-interest is the one of the issue that will be arise as the CEO of the company has the share in Biovail Corporation.

Recommendation
Have the code of ethics.

Biovail Corporation should have the code of ethics in it management. In calculating revenue, FOB structure of the product should have been understood in the deep.

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The overestimated of the product quantity should be avoided because it can lead to bad reputation of Biovail Corporation. The overestimated of quantity of product in the truck that are involved in accident has make the public look at the Biovail Corporation as the firm that are not have the ability in having efficiency management. Other than that, it will give bad reputation because public seen Biovail lied as to get the insurance claim. Biovail Corporation also should follow conservatism principle in record the loss and revenue in uncertainty situation.

Have the code of ethics to understand each product term and ethics according to the accounting principles. This ethics code can save the company from doing the fraud. Renew the legacy product patent

Biovail Corporation should renew the legacy product patent. From the case, these products were not actively promoted by Biovail Corporation and represented non-core assets for which patent protection had expired. This situation will lead the competitor to compete with Biovail. Biovail should be caution because one of the legacy products, Cardizem CD has representing 40% of product sale in it firm. So, renew the patent will maintain this percentage of product sale. Having the Good Corporate Governance Structure

Biovail Corporation should investigate the background of the Corporate Governance before hire. It must be make sure that they are independent and free from bias.