Changes in Accounting Estimates: Underlying Economic Reality or Earnings Management

2018 ◽  
Author(s):  
Al (Aloke) Ghosh ◽  
Subprasiri Siriviriyakul
Keyword(s):  
Earnings Management ◽  
Accounting Estimates ◽  
Economic Reality

Channel-Stuffing Reinvented: Earnings Management in Toshiba's Personal Computers Division

2020 ◽  
Vol 35 (3) ◽  
pp. 25-38
Author(s):  
Mahendra R. Gujarathi ◽  
Amitabh Dugar
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Statements ◽  
Personal Computers ◽  
Top Management ◽  
Graduate Level ◽  
Introductory Accounting ◽  
Accounting Courses ◽  
Economic Reality ◽  
Channel Stuffing

ABSTRACT This case describes how Toshiba, a well-known Japanese conglomerate, creatively used the technique of channel-stuffing to inflate its earnings by $478 million during 2008–2014. Students evaluate the uniqueness of Toshiba's practice of channel-stuffing, determine whether Toshiba's financial statements faithfully depicted the economic reality of underlying transactions, and understand the spiraling effects of channel-stuffing on reported profits. Students also learn that the responsibility for integrity in financial reporting lies not just with the top management, but also with the junior employees. The case requires an understanding of only basic accounting concepts and can be used in a variety of courses, especially in the M.B.A. introductory accounting course, and in the intermediate accounting courses at the undergraduate or graduate level.

Evidence of Asset Impairment Reversals from China: Economic Reality or Earnings Management?

2007 ◽  
Author(s):  
Shimin Chen ◽  
Yuetang Wang ◽  
Ziye Zhao
Keyword(s):  
Earnings Management ◽  
Asset Impairment ◽  
Economic Reality

Earnings Volatility and Auditor Risk Assessments: Evidence from Auditor Resignations

2020 ◽  
Vol 34 (4) ◽  
pp. 33-56 ◽  
Author(s):  
David B. Bryan ◽  
Terry W. Mason
Keyword(s):  
Earnings Management ◽  
Positive Association ◽  
Risk Assessments ◽  
Earnings Volatility ◽  
Big 4 ◽  
Accounting Estimates ◽  
Increase Risk

SYNOPSIS This study proposes that auditors incorporate earnings volatility into their risk assessments such that volatility is associated with auditor resignations. Because volatile earnings are less predictable, they create larger deviations from the auditor's expectation of earnings and could increase auditor risk assessments. Higher earnings volatility could also signal underlying conditions that increase risk because accounting estimates become less reliable. Alternatively, auditors may perceive lower earnings volatility as riskier if auditors view it as an indication of more earnings management. We find a positive association between earnings volatility and auditor resignations, consistent with auditors viewing volatile earnings as riskier. This association is stronger for non-industry-specialists and auditors without long tenure. Finally, after the resignation of a Big 4 auditor, firms in the top quartile of earnings volatility are more likely to switch to a non-Big 4 auditor. Overall, our results show that earnings volatility plays an important role in auditor-client realignments.

Unmasking the Fraud at Toshiba

2019 ◽  
Vol 34 (3) ◽  
pp. 41-57 ◽  
Author(s):  
Dennis H. Caplan ◽  
Saurav K. Dutta ◽  
David J. Marcinko
Keyword(s):  
Earnings Management ◽  
Corporate Culture ◽  
Audit Risk ◽  
Fraud Risk ◽  
Electric Company ◽  
Capstone Courses ◽  
Auditing Standards ◽  
Accounting Estimates ◽  
Westinghouse Electric

ABSTRACT Following its purchase of Westinghouse Electric Company and subsequent macroeconomic events, Toshiba faced declining profits. In response, Toshiba engaged in earnings management through two accounting treatments. First, it delayed the recognition of losses under long-term contracts. Second, it inappropriately applied price masking to account for transfers of components between itself and contract manufacturers. Students using this case will assess how business risks and corporate culture relate to audit risk, and how accounting for price-masking transactions can lead to increased fraud risk. Students will also research aspects of auditing standards related to fraud and accounting estimates. The case is designed for auditing courses and capstone courses with an auditing component.

scholarly journals Zarządzanie wynikiem finansowym w przedsiębiorstwach spożywczych

2018 ◽  
Vol 18(33) (3) ◽  
pp. 67-79
Author(s):  
Michał Comporek
Keyword(s):  
Earnings Management ◽  
Empirical Research ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Economic Situation ◽  
The Other ◽  
Private Benefits ◽  
Economic Practice ◽  
Warsaw Stock Exchange ◽  
Economic Reality

As the realities of economic practice show, the management of enterprise, seeking on to maximize their private benefits and on the other hand to meet the expectations of all company’ stakeholders, can take action to show the economic situation of the enterprise in a better light in the eyes of its investors, creditors, employees etc., rather than indicates the economic reality. These activities are reflected in the earnings management phenomenon. The main goal of the article is to examine the scale and directions of operations related to intentional earnings management in public food companies using the discretionary accruals ratio distinguished by: the Jones model, the Kang-Sivaramakrishnan model and the Yoon et al. model. Empirical research was carried out in a group of 21 public food companies listed on the Warsaw Stock Exchange in the years 2003-2016.

Pengaruh Hubungan Politik Terhadap Manajemen Laba Pada Perusahaan Sektor Jasa Dengan Variabel Kontrol Ukuran Perusahaan Dan Kualitas Audit

2018 ◽  
Vol 16 (2) ◽  
pp. 30
Author(s):  
Dwikky Darmawan ◽  
Weny Putri
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Significant Influence ◽  
Service Sector ◽  
Audit Quality ◽  
Stock Exchange ◽  
Secondary Data ◽  
Annual Reports ◽  
Political Connection ◽  
Discretionary Accrual

The purpose of this study is to determine the effects of political connection toward the earnings management of service sector companies with control variables firm size and audit quality. Firm�s political connection measured by using dummy variable. Earnings management is proxied by discretionary accrual which is measured by using Modified Jones Model. The research data applied in this study are the secondary data which are taken from the annual reports of service sector companies that listed in Indonesian Stock Exchange of 2016-2017 periods. There are 330 observations fit as sample, which are taken by using purposive sampling method. Data are processed by applying the multiple linear regression test. The result show that the political connection had positive but not significant influence to earnings management. Firm size had negative but not significant influence to earnings management. Whereas the audit quality had a negative and significant influence to earnings management.

The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

2014 ◽  
pp. 33-54 ◽  
Author(s):  
Riccardo Cimini ◽  
Alessandro Gaetano ◽  
Alessandra Pagani
Keyword(s):  
Earnings Management ◽  
Fiscal Year ◽  
Investment Strategies ◽  
Capital Assets ◽  
Italian Market ◽  
D Investment ◽  
Firm Evidence

In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

A Study on the Earnings Management to Avoid Earnings Decreases of Public Institution

2016 ◽  
Vol 14 (1) ◽  
pp. 1-30
Author(s):  
Byoung Uk Keum ◽  
◽  
Doo Cheol Moon
Keyword(s):  
Earnings Management ◽  
Public Institution
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