SCREEN MICROTECH INC. OverviewScreen Microtech Inc., a capacitive touch screen manufacturer, had seen significant growth over the past few years: it had moved its manufacturing plant, expanded operations, built a larger client base and seen an unprecedented increase in sales. Its CEO was preparing an initial public offering that could lead to a significant bonus and stock shares for himself and for the company's chief financial officer. This could be enough to induce them to secure improved financial results through any means necessary. Certainly, it could bias their approach to accounting policy choices.In order to prepare a fair, unbiased assessment of SMI’s financial performance, I, a financial analyst, wrote this report to Chris Derby, CEO, Brain Henderson, CFO and other senior management to point out unreasonable recordings and make readjustment based on the given accounting transactions prior to its IPO. Basic Financial performance requirementsAudited comparative financial statements covering the previous three completed financial years. As for SMI, if the company is going to file an IPO prospectus in early 2016, financial statement requirements would include audited and unbiased comparative statements of comprehensive income, statements of changes in equity and statements of cash flows for fiscal years ending 2015, 2014 and 2013. Hence, in my report, I will adjust financial performance for these 3 continuous years.Issues and adjustments for accounting transactionsI would start with the accounting method SMI is using. It has mentioned in the case that SMI is using a conservative approach, and management agreed that consistent methods should continue to be used through 2014. Accounting conservatism is a branch of accounting that requires a high degree of verification before making a legal claim to any profit as it requires recognition of all probable losses as they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified as strict revenue-recognition criteria is one of the most common forms of accounting conservatism. In other words, all the transactions should be recorded in accordance with the conservative approach. However, by assessing the given information, I found out some of the recordings were against some accounting rules.Provision for Bad debt and returns for 2013 and 2014For SMI, the case says that because of the strong relationship with Deltech which led to consistent on-time payments and minimal late payments, giving Henderson the confidence to not provision for bad debts when recognizing revenue. Similarly, because Deltech’s needs were consistent and predictable, Henderson saw no need to provision for returns.