L13 Notes_Part_4 - Need to rationalize dividend cut to...

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© W.R. Knechel Incentive to Understate Revenues and Profit Politically visible or subject to government oversight - IBM, Microsoft -> Government asserts it’s an aggressive monopolist. - Oil companies 1970’s -> “egregious” profits -> oil companies subject to windfall tax. Corporate bailout, or import relief ex: Bear Stearns, Lehmans, Chrysler, GM Union renegotiations -> need to justify wage concessions Unavoidable covenant violation. - Need to negotiate with creditors to get out of liabilities. Writeoffs also convinces lenders that management is serious about streamlining the business Nonroutine management changes result in big baths e.g., Merrill Lynch bonuses
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Unformatted text preview: Need to rationalize dividend cut to stockholders -when management is perceived to be unnecessarily overretaining cash. Revenues arising from sales to affiliates or subsidiaries. -Attempts to minimize taxes through transfer pricing, but financial reporting can become distorted. Wallpaper case, Scrap Sales, Curry Lee Warehouse and stolen accounts W.R. Knechel Revenue Cycle What accounts are in the Revenue Cycle? W.R. Knechel Audit Program (design v. performance) Performance Format eliminates duplication examines all documentation only once properly orders the procedures Next slide illustrates the design format...
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L13 Notes_Part_4 - Need to rationalize dividend cut to...

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