General Information Essay

The risk of management fraud needs to be considered when determining tolerable misstatement because the risk of fraud directly affects the risk of misstatement. Smith & Jones has a percentage that tolerable misstatement thresholds should not exceed, which is adjusted tolerable misstatement guidelines, with low risk of management fraud misstatements should balance each other out. However, when high risk of management fraud is likely misstatements will likely skew the company’s numbers to overstate the company’s income (ex. overstating income and understating expenses). If numbers are fraudulently misstated with the goal of increasing income, the chance of highly material misstatements drastically increases.

In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).

With a small group, discuss the following questions. Choose someone to read the question out loud, and direct the discussion so that each person can offer his/her opinion on the topic. Have another student record the group’s response and choose a third student to report the information gathered to the class in a discussion.

When analysts question a firm’s earnings quality, it raises concerns regarding under or over aggressive accounting practices that may be allowing the firm to manipulate the earnings. Earnings quality is defined as the strength of the current earnings in being used to predict future earnings and cash flows. Since earning quality is indicative of future performance, analysts are more likely to address issues that have substantial impact on the earnings quality. An issue arises when the nature of the earnings is questioned. While permanent earnings are part of normal operations, any irregular, one time earnings can skew the earnings, making the firm look more profitable than it is. This is due to the inability to recreate similar one-time transactions that will give rise to such numbers. Investors prefer predictable

Such an intense focus has been placed on quarterly earnings as an indication of a company’s success by everyone from analysts to executives that ethics have for the most part been thrown out the window, sacrificed to the all important number, i.e. earnings per share. This is the theory in Alex Berenson’s book “The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America.” This number has become part of a game to be played, a figure to be manipulated – beat the number and Wall Street all but throws a parade, miss it and a company’s stock may be abandoned. Take into account the incentives that executives have to beat the number and one can find plenty of reasons to manage earnings.

Ethical theory will be outlined in relation to the example case with discussion on how the case poses an ethical dilemma in the workplace. Additionally ethical theory will be considered in light of the case with

Auditors are faced with the very difficult task of insuring the public, that in their opinion, the financial statements of their clients are accurate and free of any material misstatements. The problem is that materiality is a subjective figure. In the North Face case an immaterial revenue recognition entry ended up being material when compounded with additional misstatements.

1. Discuss three management events that occurred that should have been a “red flag” to the auditing firm.

This case study is the first of a two-part Earnings Management Case. The purpose of Part

As stated in Exhibit 3, Earnings management is the managerial use of discretion to influence reported earnings. Within the accrual accounting system, managers have significant discretion with their firms’ accounting choices. Management has the ability to make choices that can opportunistically lead to higher or lower reported earnings. Richard 's and Ira Zar’s (CFO) actions would not change if these results were the result of GAAP flexibility because he violated the rules of accounting, the conceptual framework principle of neutrality in numerous ways to report the financial results that CA did under false pretenses. It would be one thing if CA garnered these results through legitimate business decisions versus using accounting tactics like changes in accounting estimates or outright fraud as in the use of the 35 day Month. The purpose of which was solely to allow CA to meet or exceed analysts’ estimates.

Mark’s option is to include an explanatory paragraph about Surfer Dude Duds, Inc.’s going concerns. SAS 59 requires an auditor to evaluate conditions or events discovered during the engagement that raise questions about the validity of the going-concern assumption. An auditor who concludes that substantial doubt exists about the entity’s ability to continue as a going concern and who is not satisfied that management’s plans are enough to mitigate these concerns is required to issue a modified (but unqualified) report. It is also the duty for Mark to convince George about the financial position of his company’s going

1. Is it unethical for a company to intentionally understate its earnings? Why or why not?

Maria Ober needs to recommend a credit decision on this deal. It would make sense for the instructor to begin with some discussion of how a senior credit officer structures the analysis for a credit decision. More importantly, the problem is not simply a yes-or-no decision on the loan, but rather, a more creative task of structuring and negotiating a deal that is sufficiently attractive to all parties.

This paper shows the analysis of the strengths and weaknesses of different discretionary accruals models in identifying earnings manipulation. The first paragraph defines earnings management and discretionary accruals as well as non-discretionary accruals. The following paragraphs after that will explain the different models that exist and how they work as well as their strengths and weaknesses. And the final paragraph will show a summary of the key findings and possible recommendations.

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide