Read attached "C3-3" document and answer the questionsin the "Questions" document attached

\fRequired 1: Retrieve the SEC's complaint against ClearOne Communication, Inc. (www.sec.gov/litigation/litreleases/lr17934.htm) Describe management's scheme for inflating revenue. Required 2: The SEC alleges that by the end of fiscal 2002, ClearOne had suffered approximately $11.5 million of inventory into the distribution channel. On the basis of this assertion, what was the approximate amount of its alleged revenue overstatement by the end of 2002? Required 3: Does the financial statement data presented support your estimate? Why, or why not? Answer: 1. SEC has alleged that company was indulged in inflating revenue through channel stuffing. At the end of each quarter during 2002, company dispatched inventory to its distributors and recorded as sales revenue while distributors were having right to return. It was sale or return basis where revenue should be recognized when distributor has confirmed sale or return period if any has expired. 2. Inventory in distribution channel $11.5m Add Margin (100% - 40.5%) $ 6.8m Overstatement of revenue in 2002 $18.3m 3. Yes, financial statements data does support our view as from above calculation there is overstatement of revenue by $18.3m and accounts receivables has increased by $13.1 m in 2002 as compared to year 2001. Net accounts receivable percentage of total sales was 18.1% (7.2/39.8) in 2001 and it increased to 37.2% (20.3/54.5) in year 2002 which indicates that overstatement of sales revenue is there shown by abnormal increase in accounts receivable to sales ratio