Earning Management
Teaching Note on How the Earnings Management
Teaching Module Can Be Taught
Teaching Aims of the Module
The Earnings Management Teaching Module is designed to help faculty teach how companies might manipulate earnings to maximize revenues, minimize expenses, and/or create reserves by setting aside some earnings in the current period that can be released into income at a later period. The result is to overstate earnings and mislead shareholders and creditors about the success of the company during one or more years. Often times the motivation to manipulate earnings is to meet financial analysts’ earnings estimates, increase the value of stock options, or maximize bonuses that are based on earnings levels.
The following briefly describes how each case meets the teaching goals of the Module.
An International Company That Engaged in Fraudulent Reporting:
Growth Electronics, Inc.
Evaluating company accounting with respect to collectibility of accounts receivable, inventory valuation, and sale transactions.
Interstate Transport, Inc: A Case Study in Earnings Management
Analyzing accounting issues with respect to: revenue recognition; inventory valuation; depreciation of assets; contingent events; earnings per share and stock options; accounting for off-balance sheet entities; and the preparation and interpretation of the Cash Flow Statement.
Multi-Element Revenue Recognition and Creating Reserves: Conservative Recognition or Cookie Jar Reserves?
Establishing software revenue recognition rules and building reserves from income in one period to be released back into income in future periods.
The Evolving Role of the Audit Committee: The Case of BellSouth Corporation
Critically evaluating the role and responsibilities of an audit committee for a public company with respect to financial statement reporting.
A.H. Robins Company, Inc. – Trade Receivables
Analyzing customers’ policy of deducting amounts from billed accounts receivable
Teaching Module Can Be Taught
Teaching Aims of the Module
The Earnings Management Teaching Module is designed to help faculty teach how companies might manipulate earnings to maximize revenues, minimize expenses, and/or create reserves by setting aside some earnings in the current period that can be released into income at a later period. The result is to overstate earnings and mislead shareholders and creditors about the success of the company during one or more years. Often times the motivation to manipulate earnings is to meet financial analysts’ earnings estimates, increase the value of stock options, or maximize bonuses that are based on earnings levels.
The following briefly describes how each case meets the teaching goals of the Module.
An International Company That Engaged in Fraudulent Reporting:
Growth Electronics, Inc.
Evaluating company accounting with respect to collectibility of accounts receivable, inventory valuation, and sale transactions.
Interstate Transport, Inc: A Case Study in Earnings Management
Analyzing accounting issues with respect to: revenue recognition; inventory valuation; depreciation of assets; contingent events; earnings per share and stock options; accounting for off-balance sheet entities; and the preparation and interpretation of the Cash Flow Statement.
Multi-Element Revenue Recognition and Creating Reserves: Conservative Recognition or Cookie Jar Reserves?
Establishing software revenue recognition rules and building reserves from income in one period to be released back into income in future periods.
The Evolving Role of the Audit Committee: The Case of BellSouth Corporation
Critically evaluating the role and responsibilities of an audit committee for a public company with respect to financial statement reporting.
A.H. Robins Company, Inc. – Trade Receivables
Analyzing customers’ policy of deducting amounts from billed accounts receivable