Earnings Management WEBCT

Earnings Management WEBCT - LECTURE 11 EARNINGS MANAGEMENT...

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LECTURE 11 EARNINGS MANAGEMENT MCGR 211
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Agenda What is earnings Management How to detect earnings management Auditing Accounting Scandals
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Importance Earnings management has become a hot topic in the business world. Earnings management is linked to accounting scandals of some of the biggest companies Think Enron, WorldCom, Madoff…
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What is Earnings Management Accounting is not always black and white Remember that we said accounting standards need to be interpreted You often have choices for accounting policies Sometimes you will also be in a specific situation where there is no accounting guidance
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What is Earnings Management Your are the CFO of a manufacturing company and you have a bonus of $500,000 if the net income of your company is $15,000,000 or higher. It is now the last week of December and your have net income of $14,900,000. You have just sold equipment to the government worth $1,000,000 with related costs of $850,000. Due to the holidays, you will deliver the equipment in January.
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What is Earnings Management After pleading guilty to defrauding his clients of billions, Bernie Madoff told investigators how he became a crook in the first place. Apparently, the Ponzi artist lamented, he'd suffered embarrassing losses with a European bank in the early '90s. Instead of confessing this to his clients and blemishing his reputation, Madoff began generating fake returns. Once he started, he explained, it was just too hard to stop. "I wish they caught me six years ago, eight years ago," he sighed.
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What is Earnings Management Management, BOD and auditors are supposed to act in the best interest of the shareholders. However, often have own personal agenda which is in conflict with the best interest of shareholders Accounting decisions are sometimes based on factors other than best interest of shareholders.
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Degrees of Accounting Conservative Accounting Moderate Accounting Aggressive Accounting
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Potential Objectives of EM Maximizing income Minimizing income Income smoothing Big Bath
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Earnings Management WEBCT - LECTURE 11 EARNINGS MANAGEMENT...

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