So Smooth
Motivation to spread out net income over time
What is income smoothing?
Overstating or understating allowances and reversing amounts in the future to smooth out net income over time
What are cookie-jar reserves?
used conference calls that provided earnings guidance to shareholders and analysts to mask a financial fraud.
What is Green Mountain?
•Recording Revenue too soon or of questionable quality.
•Recording bogus revenue.
•Boosting income with one-time gains.
•Shifting current expenses to a later or earlier period.
•Failing to record or improperly reducing liabilities.
•Shifting current revenue to a later period.
•Shifting future expenses to the current period as a special charge
Are common of this
What are the common types of financial statement shenanigans?
You often disagree with your company because its approach to reporting revenues and expenses cannot be justified from a GAAP perspective
What is Ethical Dissonance?
He linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers
Who is Arthur Levitt?
Accruals that are based on estimated changes in fundamental economic performance of the firm
What are operating accruals?
By comparing the validity of these amounts to pretax GAAP income, the company mislead readers into thinking that non-GAAP measures of earnings may be as reliable as GAAP amounts.
What is Hertz?
•Change in members of top management, especially the CFO.
•Change in auditors.
•Changes in accounting policies toward more liberal applications.
What are some red flags of earnings management?
I should behave ethically and therefore I will behave ethically
What is the prediction or forecasting phase of decision making?
focus on sales revenues or earnings expectations in light of industry and macro-economic trends.
What is forward-looking statements?
Creates cookie jar effect while portraying the company as looking worse than it is
What is Big-Bath accounting?
•Used reserves to increase earnings.
•Used mark-to-market estimates to inflate earnings.
•Selected which operating assets to “sell” to SPE’s- affecting the amount of gain and earnings effect.
What is Enron?
concept that earnings management might align with conservative versus aggressive reporting
What is the earnings continuum?
If a company is managing its earnings, they most likely follow this ethical theory.
What is egoism?
Permits forward looking statements if identified as such and accompanied by cautionary language
What are the Safe Harbor provisions?
Making deals with companies to take product sooner than they really wanted it with discounts and liberal return policies.
What is Channel Stuffing?
•Prohibiting the provision of internal audit services for audit clients.
•Off-balance-sheet financing activities must be disclosed in notes to financials.
•Related-party transactions must be disclosed in notes to financials.
What was Enron's role in SOX?
The possibility that a material misstatement will occur within the reporting company's accounting information system
What is inherent risk?
According to surveyed managers, this technique to manage earnings was considered most acceptable
What are manipulating operating decisions?
When company sells an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price.
What is round-tripping?
the case centered around improperly accounting for rebates
What is the Monsanto case?
They provide an opportunity to manage earnings through aggressive or more conservative estimations
What are accruals?