THE IMPACT OF MISSTATED ACCOUNTING DISCLOSURES ON A COMPANY’S EARNINGS: THE CASE OF AURORA CANNABIS INC.
Keywords:
cannabis, Canada, accountingAbstract
Headquartered in Edmonton (Canada), Aurora Cannabis Inc. was a vertically integrated and horizontally diversified company that produced and distributed medical cannabis and derivative products in Canada and internationally. In early 2020, Aurora announced a business transformation plan that promised to lower selling, general and administrative (SG&A) expenses and put the company on a sustainable long-term path. However, in September 2020, Aurora updated its fixed asset impairment charges and reported a surge in carrying value of inventory, resulting in a write-down of goodwill and intangible assets of approximately $1.8 billion. It was on this news that Aurora’s stock price fell by close to 12%. The company’s investors filed class-action complaints that alleged that Aurora knowingly misstated its financials and thus violated the Securities Exchange Act of 1934. A law firm representing investors retained the expert witness services of a consulting company that specialized in class action lawsuits dealing with accounting and financial reporting issues. The legal team and the consultants faced a critical decision. Was there enough evidence of intentional wrongdoing and financial misreporting to pursue the lawsuit? This case integrates the issues of financial reporting, business law, shareholder value, and investor expectation management
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