Prepared by Wanda A. Wallace

1. Chapter 2 Resources Beyond The Financial Accounting Research System (FARS): EXERCISE A Perform Literature Searches Prepared by Wanda A. Wallace

2. Chapter 2 Exercise A 1. • QUERY:Locate any media coverage concerning TenFold Corporation and, in particular, the enforcement proceedings to which the December 2005 announcement relates. Based on your reading of the articles, explain the nature of the allegations that TenFold Corporation and its officers faced.

3. Chapter 2 Exercise A 1. • Suggested Responses for Discussion • 1. At the sec.gov site, the enforcement release can be accessed: • Litigation Release No. 17852 / November 20, 2002 Accounting and Auditing Enforcement Release No. 1669 / November 20, 2002 Securities and Exchange Commission v. TenFold Corporation, Gary D. Kennedy, Robert P. Hughes, Stanley G. Hanks, and Wynn K. Clayton, Case No. 02-2284 JDB (D.D.C.)

4. Chapter 2 Exercise A 1. (cont’d) • Recap: The SEC release makes reference to • the disclosure of contracts, • the acceleration of revenue, • the allotment of shares on an initial public offering (IPO), • false or misleading conference calls, and • problems with the completion of software development.

5. Chapter 2 Exercise A 1. (cont’d) • By accessing NYTimes.com, one can obtain previews of articles, such as: • "S.E.C. Drops Case Against Software Executives" December 20, 2005, Tuesday.

6. Chapter 2 Exercise A 2. • QUERY: Perform a literature search to identify related articles on TenFold Corporation surrounding the events described, as well as related to performance by the company in the aftermath of this media coverage. Provide citations for what you deem to be particularly useful articles for your research effort. Was a restatement considered or recorded by TenFold Corporation? How does the setting compare or contrast with the various restatements reflected in the GAO reports? Explain why you believe the events unfolded in the manner you recount, particularly the dismissal of the case on the eve of trial.

7. Chapter 2 Exercise A 2. • Suggested Responses for Discussion • Access SEC NEWS DIGEST, Issue 2005-244 (December 21, 2005) which states: • "COMMISSION VOLUNTARILY DISMISSES ALL CLAIMS AGAINST FORMER OFFICERS OF TENFOLD CORPORATION"

8. Chapter 2 Exercise A 2. (cont’d) • The excite.com site is an example of where TENFOLD CORP (OTC BB) can be searched to identify Recent Headlines. • The company's web site has a number of press releases available, reporting diverse events.

9. Chapter 2 Exercise A 2. (cont’d) • TenFold's 10-K for the year ended December 31, 2004 provides an exposition which includes mention of no restatement being required by the SEC. • Data published by the Government Accountability Office (GAO) details 919 restatements from 1997 to June of 2002.

10. Chapter 2 Exercise A 2. (cont’d) • The GAO database includes a company from the SIC 7371 named LEVEL 8 SYS INC. Its sales were $22.659 million, cost of sales $26.889 million, gross profit -$4.23 million, SGA expense $33.877 million, Basic EPS Including Extraordinary Items -$6.65 and total assets of $35.744 million.

11. Chapter 2 Exercise A 2. (cont’d) • The GAO reported the reason for restating their financial statements, identifying nine categories. Those entities for which management moves are also cited in the media coverage of restatements tend to be more often associated with • revenue recognition, • acquisitions, • in-process research and development (IPRD), • restructuring, and • related parties • -- highly judgmental areas of practice. • They are less often associated with securities, costs and expenses, or reclassifications.

12. Chapter 2 Exercise A 2. (cont’d) • In December 1999, the SEC issued SAB No. 101 on Revenue Recognition -- widely cited as a key reason for restatements but arguably different in kind. Although the GAO report explicitly states that it decided to include such restatements since the SEC contends its SAB did not alter but merely clarified existing guidance (GAO 2002: 5, fn 6), that is not a widely held belief in the profession.

13. Chapter 2 Exercise A 2. (cont’d) • Dismissal of the case could have involved • considerations of the relative strength of the case, • the timing of the case during the holidays, • the difference in error and judgment assessments, and • the distinction between entity responsibility and assignment of personal responsibility. • What else? • Should such elements ought to influence activities of regulators and judicial officers?

14. Chapter 2 Exercise A 3. • QUERY: Access Wikipedia and look up an item that would appear to have relevance to the issues involved in the TenFold Corporation research effort. Then look up a subject about which you feel personally well versed. Drawing upon these two results, share your assessment as to the usefulness of this interactive resource and why caution is advised.

15. Chapter 2 Exercise A 3. • Suggested Responses for Discussion • Likely results include ranges from: • accurate to inaccurate • objective to subjective • complete to incomplete • The positive take on such resources is they represent the result of mass collaboration. • However, whois collaborating and the intent of the collaborator are issues to raise.

16. Chapter 2 Exercise A 3. (cont’d) • Discuss the role of quality control in the historical publishing business. • Be skeptical and exert efforts to cross-corroborate information.