The Deal
Feeling Stuffed

By Matt Miller

Regulators are increasingly focusing on companies that inflate revenues with phony sales to distributors. The trouble is, "channel stuffing" isn't always so easy to identify.

Others differ in their interpretation. Channel stuffing has "entered the normal course of business and by itself is not an issue," counters J. Edward Ketz, a professor of accounting at Pennsylvania State University's Smeal College of Business Administration. "The real problem is accounting for it."

According to Ketz and other authorities, regulatory agencies won't target channel stuffing as long as a sale is genuine and the company establishes adequate reserves for possible returns. For example, it is improper to recognize revenue on sales where there is a right of return and where customers have yet to pay. Failure to disclose this practice is fraudulent.

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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu .

Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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