Beruflich Dokumente
Kultur Dokumente
1
Overview
Schipper (1998)
3
A. Detecting Accounting Manipulations
It is important to
Analyze managers’ incentives
What if earnings is lower/higher?
Earnings targets
Contractual obligations
Understand the firm’s business and industry practice
Do other firms report similar changes?
Does the firm change its corporate strategy?
B. Steps in Accounting Quality Analysis
Overstated assets
Delayed write-down of current assets
Delayed write-down of long-term assets
Underestimated provisions
Accelerated recognition of revenues
Understated depreciation/amortization
C2. Adjustments for Assets Distortion
Understated Assets
To deflate reported earnings
Save for the future
Take a “big bath”
Overstated write-down of assets
Overestimated provisions
Overstated depreciation
Off-balance sheet lease
C2. Adjustments for Assets Distortion
Understated liabilities
To increase earnings
To reduce liabilities in the book
Understated unearned revenue
Off-balance sheet discounted receivables
Off-balance sheet lease
Operating lease
Capital lease
C3. Adjustments for Liabilities Distortion
Operating leases
Decrease assets and liabilities
Decrease depreciation and interest expenses
Increase operating expense
Firms may choose to use operating lease to under-report liabilities.
Lease payments are real cash outflow, just like interest payments.
Converting operating lease into capital lease helps correctly assess
financial risk.
C2. Adjustments for Liabilities Distortion