Class 4 Accounting Analysis 6slides

Class 4 Accounting Analysis 6slides - Todays Plan Identify...

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1 1 Financial Statement Analysis Class 4: Accounting Analysis 2 Identify earnings management Undo earnings management Recast financial statements Today’s Plan 2 Adjust for assets distortion Adjust for liability distortion Adjust for equity distortion A. Earnings Management Earnings Management occurs “when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the 3 to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers.” Schipper (1998) A. Earnings Management Cash flow management Accruals management But managers can use reporting discretions to signal private information 4 Increase in inventory Manipulation to decrease COGS and increase earnings Signal of expected high sales in the future Decrease in allowance
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Class 4 Accounting Analysis 6slides - Todays Plan Identify...

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