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Lernout & Hauspie Case Study

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by

Victoria Meininger

on 13 November 2014

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Transcript of Lernout & Hauspie Case Study

1987: Founded
1995: IPO
1996: Bastiaen as
President & CEO
1998: Technical Difficulties
1997: Bill Gates Invests
Aug. 2000:
Bastiaens fired
2000: Prominent Acquisitions
Aug. 2000: WSJ questions Korea
Sept. 2000:
SEC investigates
Nov. 2000:
Jo & Pol resign
Nov. 2000: KPMG withdraws audits
2001: L&H declared bankrupt
2010: GUILTY
Bastiaens set up a company responsible for R&D
Purchased multiple software companies
Continuing glitches



KOREA:
Factoring unpaid receivable to banks to get cash upfront
Paying itself through 3rd parties and bank loans
Recorded contracts at end of quarter
(then canceled)
Fictitious Korean sales
($97,000 to $59,000,000 in 1 yr)


Lernout & Hauspie
Speech Products

EARNINGS MANAGEMENT!
Lack of transparency
No legislation
Flawed corporate governance structure
Lack of internal controls
Less earnings management
Greater accountability
More transparency

Costly to implement controls
Slower growth
Results
The Problem
History
Alternative
Solutions

1
Brandon Deraney, Joshua Jensen, Victoria Meininger
2
Preventive Controls
Tone at the top
Code of ethics
Independent Board of Directors
Internal auditors
Different incentive systems
Audit committee
Stay private
Avoided pressure
Would not reap benefits
Management left in tack
Less earnings management
Accurate financial statements
Ethical culture
Likely to avoid fraudulent practices
Protected stakeholders
Full transcript