Opinion ID: 180862
Heading Depth: 5
Heading Rank: 1

Heading: Uncertain prices and returns

Text: The government argues that terms in the Ingram deals allowing for future adjustments to prices, such as sell-through rebates, meant that prices were not substantially fixed or determinable when NAI made the sales. [8] It is undisputed, however, that future contingencies do not render sell-in revenue recognition improper if the seller can reasonably estimate the effect of the contingencies and set aside reserves adequate to cover them. The prosecution, therefore, could only prove this species of GAAP violation beyond a reasonable doubt by showing that NAI's reserves did not reasonably account for the terms of the quarter-end sales. The prosecution failed to make its case on this point. The government offered no evidence that NAI's reserves were, in fact, inadequate. Instead, it relied on equivocal and conclusory statements from witnesses principally Hans Winters and Robert Stavers, two of NAI's auditors at PwCto the effect that sales terms like rebates would raise questions about the accounting the company was using. Even where the witnesses testified that certain terms would preclude sell-in accounting, the government admits that adequate reserves would resolve these GAAP problems, and the witnesses had no basis to opine on whether NAI's reserves actually were inadequate. As the district court observed, no witness had done the work, [or] perform[ed] the computations that would establish a basis to render an opinion about how FAS 48 applied to NAI's financial statements, including the reserves it set aside. [9] With no evidence of what NAI's reserves were, or how they fell short of amounts that the Ingram sales required, no reasonable juror could have found a GAAP violation that depended on insufficient reserves. A similar problem arose with respect to sales terms that allowed Ingram to return software to NAI. GAAP only allows sell-in accounting to be used when [t]he amount of future returns can be reasonably estimated. FAS 48, ¶ 6(f). The government argued that certain terms in the buy-in transactions gave Ingram an unlimited right to return software it purchased, and that an unlimited right of return automatically defeated sell-in accounting. Stavers testified, in response to a hypothetical question, that if the distributor had an unlimited right of return, then ... we do not believe it would have been possible to estimate the return. But he did not base this statement on an analysis of NAI's actual return estimations. FAS 48 lays out four factors [that] may impair the ability to make a reasonable estimate of future returns. FAS 48, ¶ 8. No witness applied these factors to NAI's buy-in deals or concluded that NAI could not accurately estimate returns. The prosecution needed to prove what NAI did, not what the buy-in terms made hypothetically possible. Without evidence that Ingram's returns were not amenable to reasonable estimation, no reasonable juror could have found that using sell-in accounting for these sales violated GAAP.