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ACC REF and DEF

TechniqueHowExample
Earnings Management smoothing profits via accurals General Electric under CEO Jack Welch regularly met eanrings to the penny via "cookies jar" reserves
Revenue Recognition Recognising revenue too early Tesco 2014 recognise supplier rebates early, overestimating profits early by $326m leading to their CEO to be dismissed and SFO investigation
Off-Balance Sheet Financing Hiding Debt from SOFP Enron 2001 used SPEs(Special Purpose Entities) to conceal their debt with Arthur Anderson which was approved but failed substance over form.
Balance Sheet Window Dressing Temporary Ratio Improvements Premier Leauge swapped players at inflated values before year end to avoid Profit and Sustainability Rules breaches > legal but unethical
Big Bath Provisions Overstating Losses in a bad year Barclays CEO writes down assets massively to make future growth look better.
PAT It posisits that managers act opportunistically to maximise their personal wealth, leading to three predictive behaviours Bonus Plan Debt Convenant Political Cost
Bonus plan managers with bonus based income choose income increasing methods A CEO with bonus tied to ROA will capitalise rather than expense R&D costs
Debt Convenant High Debt firms choose income increasing methods to avoid convenant breaches Covid airlines extended depreciation periods to boost profits and avoid defaults on loans
Political Costs Large firms use income decreasing methods to avoid political attention Amazon pays minimal tax via aggrestive accounting but reports lower profits to avoid 'Monopoly' Break up calls
Created by: csrix
 

 



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