As managers, earnings management is always a challenge. The company strives to maximize the bottom line. Often there are situations that are grey areas and some discretion is allowed. However, there are times that management might be tempted to make decisions in the company’s favor that may violate a core accounting principle such as the matching principle or the principle of materiality or conservatism.
Please read the following article on earnings management from the AICPA. Then find a case where a company abused the concept of earnings management. You may use one of the larger fraud cases we have experienced here in the US, but your research is not limited to the US to find fraud cases. (Enron is discouraged as it is a very complicated case)
Use the STAR Method to construct your report (see below).
Find an article with a real-world accounting problem** dealing with earnings management.
Use the STAR method outlined above to write an executive report.
Sources: 3 Minimum: one article discussing the problem (does not have to be scholarly) and supporting references for FASB or other references as needed to support the target, action or results sections.
References should be in correct APA 7 format. This should also include the base article for the report.
Avoid all quotes
Paper must be grammatically correct
Report should have a proper APA title page Use the STAR acronyms as section titles (Bolded and centered). (No abstract, introduction or conclusion will be used in this report)
The report should be about 3-5 pages in length.
**search hints might include: earnings management, or Accounting problem + revenue recognition, or accounting + Fraud,
Format your report using the STAR REPORT which is an executive summary format.
S – Situation – describe the current situation in (10% – length). Just provide the facts of the situation and why this is a problem. What accounting principle was violated?
T – Target – Why did the company manipulate its earnings? What their goal?
A – Action – How were the errant accounting issues discovered? What could have been done to prevent the erroneous transactions?
R – Results – What was the impact of the discovery of of the accounting issues on the company? Were any executives impacted? How as the company faired since the discovery of this accounting issues?
