This assignment will help you to understand:
- Earnings manages;
- The most common revenue-recognition abuses in the field; and
- The impact of revenue-recognition abuses on reported net income.
Read the article “How Are Earnings Managed? Evidence from Auditors” in Accounting Horizons, 2003 (Supplement) and answer the following questions:
1. What is earnings management?
2. What are the specific methods by which earnings management is attempted?
3. What are the four most common revenue-recognition abuses identified by auditors in that article? From the examples provided in the article, briefly explain each abuse.
4. Did revenue-recognition abuses tend to increase or decrease net income in the year they occurred?
5. Did auditors tend to require clients to make adjustments that reduced the revenue-recognition abuses they detected?
Criteria for success:
You will be successful in this assignment if you can:
1. Provide answers to all of the questions with descriptions that are clear to another reader; and
2. Obtain related information from the article when construct your responses.