Baywatch International: A Case Linking Financial-Reporting, Business, and User Decisions

2000 ◽  
Vol 15 (4) ◽  
pp. 605-633 ◽  
Author(s):  
Fred Phillips ◽  
Kevin Morris ◽  
Kristina Zvinakis
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Accounting ◽  
Financial Statement ◽  
Technical Knowledge ◽  
Capital Asset ◽  
Financial Statement Analysis ◽  
Accounting Courses ◽  
Reporting Decisions ◽  
Asset Depreciation

Baywatch International is a hypothetical company that manufactures figure-enhancement products—a rapidly growing industry that is featured frequently in Fortune and on CNNfn. The executives at Baywatch are making financial-reporting decisions pertaining to the company's receivables, inventories, loss contingencies, and capital asset depreciation. These decisions require technical knowledge of fundamental topics covered in introductory financial accounting courses, as well as an appreciation for relationships among financial-reporting, business, and user decisions. Consideration of the implications for financial statement analysis, earnings management, and financial-reporting ethics also is encouraged.

The Effect of Real Earnings Management on Auditor Scrutiny of Management's Other Financial Reporting Decisions

2018 ◽  
Vol 93 (5) ◽  
pp. 145-163 ◽  
Author(s):  
Benjamin P. Commerford ◽  
Richard C. Hatfield ◽  
Richard W. Houston
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Mediation Model ◽  
Reporting Decisions ◽  
Regulatory Scrutiny ◽  
Serial Mediation ◽  
Subjective Estimates ◽  
Inference Theory

ABSTRACT Recent research reveals that accruals-based earnings management (AEM) is decreasing while real earnings management (REM) is increasing, suggesting the correlation is due to regulatory scrutiny. However, based on Correspondent Inference Theory, we predict and find that when management uses REM, auditors are more restrictive of management's subjective estimates, making it more difficult for management to use income-increasing AEM. Our experiment manipulates the presence versus absence of REM, and whether the audit difference potentially impacts the client's ability to meet an earnings target. Using a serial mediation model, we find that when auditors observe REM, they perceive these operating decisions as aggressive, leading them to perceive management as aggressive, ultimately causing greater proposed adjustments on an unrelated audit difference. We contribute to the literature by demonstrating that when auditors observe REM, their altered perceptions about management can cascade, affecting how they respond to management estimates in unrelated financial statement accounts.

Portable Power: An Application of IAS 16 Including Self-Constructed Assets and the Revaluation Model

2019 ◽  
Vol 34 (2) ◽  
pp. 61-71 ◽  
Author(s):  
Susan B. Hughes ◽  
Suzanne Lowensohn ◽  
Elise Tefre
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
High Energy ◽  
Production Equipment ◽  
Financial Accounting ◽  
Financial Statement ◽  
Financial Reporting Standards ◽  
Portable Power ◽  
Accounting Courses ◽  
Privately Owned

ABSTRACT This teaching case focuses on a privately owned Swiss company that produces and sells high-energy chews favored by European athletes. External investors recently expressed interest in the company. Management hired an international public accounting firm and is currently preparing its first set of audited International Financial Reporting Standards (IFRS) financial statements. The auditors question management's fair value estimations for the land and production equipment, as well as the accuracy of capitalized greenhouse costs included in operating assets. The case emphasizes the need to consult IFRS, form judgments and estimates when determining financial statement content, and draft appropriate note disclosures. Students are also exposed to the complexities of accounting for agricultural assets, a category not often included in financial accounting courses. After working through this case, students should be able to measure fair value and determine the reliability of valuation inputs, appropriately capitalize assets, and draft necessary disclosures.

Evaluating Financial Results at Graphic Apparel Corporation (GAC): The Impact of Accounting Policies

2014 ◽  
Vol 30 (1) ◽  
pp. 1-12
Author(s):  
Fred Phillips
Keyword(s):  
Critical Thinking ◽  
Financial Reporting ◽  
Thinking Skills ◽  
Critical Thinking Skills ◽  
Financial Accounting ◽  
Financial Statement ◽  
Reporting Practices ◽  
Accounting Courses ◽  
The Impact

ABSTRACT This case requires students to evaluate financial reporting practices adopted by a small apparel company. The company's owner/manager has recently taken the business in a new direction, and is asking for help in determining whether the company's existing financial accounting policies continue to be appropriate and how alternative policies would affect the reported financial results. This case will require students to apply knowledge of financial accounting and financial statement ratios to judge the appropriateness of selected accounting policies. This case is designed for use in introductory and intermediate financial accounting courses that aim to develop students' critical thinking skills.

Alibaba Group Initial Public Offering: A Case Study of Financial Reporting Issues

2016 ◽  
Vol 31 (4) ◽  
pp. 449-460 ◽  
Author(s):  
Qing L. Burke ◽  
Tim V. Eaton
Keyword(s):  
New York ◽  
Initial Public Offering ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Financial Accounting ◽  
Learning Needs ◽  
York Stock Exchange ◽  
Accounting Courses ◽  
Chinese Company ◽  
Public Offering

ABSTRACT In September 2014, the Chinese e-commerce giant Alibaba Group Holding Limited issued shares on the New York Stock Exchange, making it the world's largest initial public offering. This case examines different aspects of the Alibaba Group's initial public offering, including Alibaba Group's business model, financial reporting and corporate governance, as well as the macroeconomic, political, and legal environment in which the company operates. In addition, this case will familiarize students with the risks and opportunities for Chinese companies and investors when a Chinese company lists in the U.S. This case is suitable for financial accounting and international accounting courses at the intermediate and advanced levels for undergraduates as well as graduate students. The case is scalable, and instructors can choose from multiple sections of the case and different case questions to tailor the case difficulty to their students' learning needs.

scholarly journals The Attenuating Effect of Intelligent Agents and Agent Autonomy on Managers' Ability to Diffuse Responsibility for and Engage in Earnings Management

2020 ◽  
Vol 34 (4) ◽  
pp. 143-164
Author(s):  
Peter C. Kipp ◽  
Mary B. Curtis ◽  
Ziyin Li
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Intelligent Agents ◽  
Autonomous Agents ◽  
Ethical Conduct ◽  
Human Agent ◽  
Perception Of Control ◽  
Reporting Decisions ◽  
Aggressive Financial Reporting

SYNOPSIS Advances in IT suggest that computerized intelligent agents (IAs) may soon occupy many roles that presently employ human agents. A significant concern is the ethical conduct of those who use IAs, including their possible utilization by managers to engage in earnings management. We investigate how financial reporting decisions are affected when they are supported by the work of an IA versus a human agent, with varying autonomy. In an experiment with experienced managers, we vary agent type (human versus IA) and autonomy (more versus less), finding that managers engage in less aggressive financial reporting decisions with IAs than with human agents, and engage in less aggressive reporting decisions with less autonomous agents than with more autonomous agents. Managers' perception of control over their agent and ability to diffuse their own responsibility for financial reporting decisions explain the effect of agent type and autonomy on managers' financial reporting decisions.

Impairment reversals: unbiased reporting or earnings management

2018 ◽  
Vol 26 (2) ◽  
pp. 245-271 ◽  
Author(s):  
Tongyu Cao ◽  
Hasnah Shaari ◽  
Ray Donnelly
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Reporting Standard ◽  
Accounting Standard ◽  
Content Type ◽  
Study Support ◽  
A Company

Purpose This paper aims to provide evidence that will inform the convergence debate regarding accounting standards. The authors assess the ability of impairment reversals allowed under International Accounting Standard 36 but disallowed by the Financial Accounting Standards Board to provide useful information about a company. Design/methodology/approach The authors use a sample of 182 Malaysian firms that reversed impairment charges and a matched sample of firms which chose not to reverse their impairments. Further analysis examines if reversing an impairment charge is associated with motivations for and evidence of earnings management. Findings The authors find no evidence that the reversal of an impairment charge marks a company out as managing contemporaneous earnings. However, they document evidence that firms with high levels of abnormal accruals and weak corporate governance avoid earnings decline by reversing previously recognized impairments. In addition, companies that have engaged in big baths as evidenced by high accumulated impairment balances and prior changes in top management, use impairment reversals to avoid earnings declines. Research limitations/implications The results of this study support both the informative and opportunistic hypotheses of impairment reversal reporting using Financial Reporting Standard 136. Practical implications The results also demonstrate how companies that use impairment reversals opportunistically can be identified. Originality/value The results support IASB’s approach to the reversal of impairments. They also provide novel evidence as to how companies exploit a cookie-jar reserve created by a prior big bath opportunistically.

Teaching Intermediate Financial Accounting Using a Business Activity Model

2000 ◽  
Vol 15 (4) ◽  
pp. 583-603 ◽  
Author(s):  
Anthony H. Catanach ◽  
David B. Croll ◽  
Robert L. Grinaker
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Accounting Education ◽  
Financial Accounting ◽  
Professional Service ◽  
Business Activity ◽  
Curriculum Revision ◽  
Activity Model ◽  
Technical Competency ◽  
Accounting Courses

This paper describes a creative approach to the instruction of intermediate financial accounting that relies primarily on a business activity model (BAM). Initially funded by an Accounting Education Change Commission (AECC) grant, this curriculum revision is designed to (1) motivate students for their chosen profession, (2) promote their technical competency, and (3) develop in them an expanded set of educational objectives including critical-thinking, communication, and research skills. The BAM emphasizes financial disclosure and technical research as well as those topics commonly found in “traditional” intermediate accounting courses. Working in professional service teams, students mimic the accounting and financial-reporting processes found in the “real world” by conducting analytical reviews, soliciting information from clients, preparing adjusting and correcting entries, and drafting financial statements and notes for a fictitious client company.

Financial Statement Analysis Under IFRS

2018 ◽  
pp. 696-712
Author(s):  
Yasemin Zengin Karaibrahimoglu ◽  
Gökçe Tunç
Keyword(s):  
New York ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Statement Analysis ◽  
Financial Reports ◽  
York Stock Exchange ◽  
Key Points ◽  
Recent Developments

This chapter provides a clear conceptual discussion on the recent developments in the Financial Statement Analysis (FSA). It presents how IFRSs changed the outlook of the financial reporting and the analysis and explains the key points that should be considered in FSA. Using a case study on the financial reports of Turkcell, a communication and technology company listed both on the New York Stock Exchange (NYSE) and the Borsa Istanbul (BIST), the differences between IFRSs and U.S. GAAP accounting standards in the measurement of overall financial performance and position are documented. Overall findings show that IFRSs change the appearance of financial statements significantly. While IFRS reporting extenuates “the bottom line” it accentuates total assets with higher shareholder equity compared to U.S. GAAP. This chapter might be a practical guide for users, preparers, and regulators to understand the cosmetic impact of IFRSs on financial statements.

scholarly journals The Impact of Financial Statement Comparability on Earnings Management: Evidence from Frontier Markets

2020 ◽  
Vol 8 (4) ◽  
pp. 73
Author(s):  
Wil Martens ◽  
Prem W. S. Yapa ◽  
Maryam Safari
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Common Law ◽  
Accounting Standards ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Financial Reporting Standards ◽  
Developed Markets ◽  
Accounting Comparability ◽  
The Impact

This paper examined whether financial statement comparability constrains opportunistic earnings management in frontier market countries. Using a large sample of 19 frontier market countries, and an accounting comparability method that maps comparability across several accounting standards, the results show that enhanced financial comparability constrains accruals earnings management (AEM). Contrary to developed markets and novel to this study, a significant relationship between financial comparability and real earnings management (REM) was not found. For greater robustness, AEM and REM were also tested on both International Financial Reporting Standards (IFRS) adopting and non-adopting countries. The results suggest IFRS adoption constrains AEM, yet exhibited no impact on constraining REM. Additionally, the use of BigN auditors failed to conclusively show an ability to moderate EM. When combined, the results suggest that frontier markets engage in less REM than expected. It is also noted that the legal roots (civil vs. common law) play a significant role in constraining earnings management. Common law countries exhibited lower AEM when comparability increased; this significance was not found in countries that were rooted in civil law. Contributions from this study show that findings from developed markets cannot be generalised to frontier markets.

scholarly journals An Assessment of the Application of Earnings Management Objectives and Instruments in Financial Reporting – Evidence of Survey Research Results

2013 ◽  
Vol 60 (2) ◽  
pp. 148-173
Author(s):  
Andrzej Piosik ◽  
Marzena Strojek-Filus
Keyword(s):  
Earnings Management ◽  
Survey Research ◽  
Financial Reporting ◽  
Research Problem ◽  
Financial Statement ◽  
Board Members ◽  
Executive Board ◽  
Management Tools ◽  
Management Objectives ◽  
Effective Instrument

Abstract The study contains an overview of earnings management tools of reporting entities and capital groups in Poland. Relations between the phenomenon of earnings management and financial reporting policy have been analysed. A research problem related to the significance and application of particular earnings management tools as perceived by practitioners (accountants, executive board members, specialists) has been discussed. Selected tools of earnings management, usually linked with operations, are perceived to be used more intensively. The conducted analysis shows that in the opinion of the surveyed respondents the most effective instrument influencing the desired level of results presented in a financial statement is carrying out transactions under conditions which ensure the achievement of a reported goal. This applies also to capital groups, in which transactions effected between group units were indicated as the ones used to the greatest extent.

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