Earnings Management - Channel Stuffing

An interesting article on the SEC's probe of possible "Channel Stuffing" by Diageo PLC (owner of Smirnoff and Johnnie Walker), on the sale of Alcohol.  Channel Stuffing occurs when a company ships unordered inventory to a customer and records the shipment as a sale.  Of course, it's inappropriate to record revenue on an unordered shipment.  If the goods are returned by the customer, the company simply records the return.  This technique may be used to boost earnings at the end of the year.  It is a form of earnings management, where a company uses techniques to make its earnings appear to hit certain targets, thereby increasing its stock price.  Of course the technique is not permissible and is a hot topic for the SEC.  The full article is available here: http://www.nasdaq.com/article/sec-investigating-smirnoff-maker-diageoupd...