Accounting Essay

2404 words - 10 pages

On September 28, 1998, Chairman of the U.S. Securities and Exchange Commission Arthur Levitt sounded the call to arms in the financial community. Levitt asked for, "immediate and coordinated action… to assure credibility and transparency" of financial reporting. Levitt’s speech emphasized the importance of clear financial reporting to those gathered at New York University. Reporting which has bowed to the pressures and tricks of earnings management. Levitt specifically addresses five of the most popular tricks used by firms to smooth earnings. Secondly, Levitt outlines an eight part action plan to recover the integrity of financial reporting in the U.S. market place. What are the basic ...view middle of the document...

The pressure to achieve consensus estimates has never been so intense. The market demands consistency and punishes those who come up short. Eric Benhamou, former CEO of 3COM Corporation, learned this hard lesson over a few short weeks in 1996. Benhamou and shareholders lost $7 billion in market value when 3COM failed to achieve expectations. The pressures are a tangled web of expectations, and conflicts of interest which Levitt describes as "almost self-perpetuating." With pressures mounting, the answer from U.S. managers has been earnings management with a mix of managed expectations. March of 1997 Fortune magazine reported that for an unprecedented sixteen consecutive quarters, more S&P 500 companies have beat the consensus earnings estimate than missed them. The sign of a quickly growing economy and a measure of the importance the market has placed on consensus earnings estimates. The singular emphasis on earnings growth by investors has opened the door to earnings management solutions. Solutions that are further being reinforced to managers by market forces and compensation plans. Primarily, managers jobs depend on their ability to build stockholder equity, and ever more importantly their own compensation. A growing number of CEO’s are recieving greater percentages of their compensation as stock options. A very personal incentive for executive achievement of consensus earnings estimates. Companies are not the only ones to feel the squeeze. Analysts are being pressured by large institutional investors and companies seeking to manage expectations. Everyone is seeking the win. Auditors are being accused of being out to lunch, with the clients. Many accounting firms are coming under scrutiny as some of their clients are being investigated by the SEC for irregularities in their practice of accounting. Cendant and Sunbeam both left accounting giant Arthur Anderson holding a big ol’bag full of unreported accounting irregularities. Auditors from BDO Seidman addressed issues of GAAP with Thing New Ideas company. The Changes were made and BDO was replace for no specific reason. Herb Greenberg calls the episode, "A reminder that the company being audited also pays the auditors’ bill." The Kind of conflict of interests that leads us to question the idea of how independent the auditors are. All of these pressures allow questionable accounting practices to obfuscate the reporting process. Generally accepted accounting principles are intended to be a guide, not a procedure. They have been developed with intended flexibility so as not to hinder the advancement of new and innovative business practice. Flexibility that has left plenty of room for companies to stretch the boundaries of GAAP. Levitt focus’s on five of the most widespread techniques used to deliver added flexibility. "Big Bath" restructuring charges, creative acquisition accounting, "Cookie Jar" reserves, "Immaterial" misapplications of accounting principles and the premature recognition of...

Other Essays Like Accounting

Accounting Essay

581 words - 3 pages as follows. Section II discusses the background of IFRS adoption in Europe. Section III reviews prior research and provides the basis for interpreting the market reaction to each event. Section IV describes our data and research design. Section V presents our empirical results, and Section VI presents sensitivity analyses. Section VII concludes. Literature review Debates about financial reporting and accounting standards can seem arcane

Accounting Essay

2152 words - 9 pages Introduction During the recent years the use of cloud based accounting information systems (AIS) in business organisations has been growing rapidly. In a survey conducted by Mimecast across the U.S. and Canada on cloud computing adoption by businesses, it has been found that 51 percent of the business ventures have already adopted cloud computing. The survey also indicated that 66 percent of enterprises are considering about the adoption of

Accounting

1517 words - 7 pages Every entity at the end of the accounting period will make financial record in order to determine the profit or loss during the period. Any income of the entity must be subject to the tax even though they are having profit or suffering loss. The accounting treatment for income taxes is determined by Australian Accounting Standards Board (AASB) 112 which adopts the tax effect method that incorporates both current and future tax consequences of

Accounting - 1018 words

1018 words - 5 pages iPhone at Apple, Inc.: The case provides students with an understanding of the criteria for revenue recognition and the role of accrual accounting in reflecting timing differences between cash receipts and product/service delivery, especially in situations where there are multiple deliverables. The case also enables students to reflect on (a) the use of supplementary non-GAAP disclosures, (b) the impact of accounting on firm value and (c

Accounting - 1993 words

1993 words - 8 pages Maytag they sales became higher for the company than in 2005. Week 4 Read ATC 7-5 in Chapter 7. This situation is very similar to what a company called Enron did several years ago. Use the internet or the university library to research exactly what Enron did in their accounting procedures and what eventually happened to the company. Post your findings and understanding of Enron’s story and respond to two other students’ postings with enhancements

Accounting - 687 words

687 words - 3 pages cost information. For companies using activity-based costing systems, a switch to activity-based budgeting makes sense. An activity-based budget is prepared by focusing on the budgeted costs of activities needed to produce and/or sell products and service instead of using the traditional approach. 7. Describe responsibility centers and responsibility accounting An organizational structure includes lines of responsibility within the

Accounting - 1173 words

1173 words - 5 pages . GAAP. “Generally Accepted Accounting Principles (GAAP) vary from International Financial Reporting Standards in that under GAAP rules, dividends received from a company's investing activities is reported as an "operating activity," not an "investing activity." (Accounting Info) Cash flows from interest and dividends received and paid are disclosed separately. Each is classified in a regular manner from date to date as operating, investing or

Accounting - 2946 words

2946 words - 12 pages Decorus Dea Notes to Consolidated Financial Statements Notes 1 Summary of Significant Accounting Policies Nature of Operations: The Decorus Dea (the “Company,” “we” or “us”) business is focused on providing high end, off the runway clothing and beauty products of superior quality and value. Our stores are located in four different states, Georgia, Florida, California and New York and consist of 56 stores. Our stores are located inside

Accounting - 4330 words

4330 words - 18 pages ACC 312 Fundamentals of Managerial Accounting Midterm Exam 1, Spring 2014 Test Form A SOLUTION Name ______________________________________________________________________ UTEID ____________________________________ Instructor ____________________________________________ Class Days ___________________ Time ______________________ DO NOT OPEN until given instructions to do so. Instructions Pages are numbered sequentially, including

Accounting - 1854 words

1854 words - 8 pages rate of 5.5%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Williams Co.? a. $35,100 b. $24,600 c. $12,000 d. $8,400 11. In accounting for compensated absences, a company following the guidance in FASB Statement No. 43 would account for the liability using the: Cash

Accounting - 762 words

762 words - 4 pages Chapter 8 – 3, 4 & E 8-5 and Chapter 9 – E 9-9 Questions University of Phoenix ACC 400 Chapter 8 – Question 3 1. What are the essential features of the allowance method of accounting for bad debts? The essential features of the allowance method of accounting for the bad debts according to Kimmel, Weygandt, & Kieso are: • Companies estimate uncollectible accounts receivable and match them against

Related Papers

Accounting Essay 566 Words

566 words - 3 pages The Nature of Cost Accounting Cost accounting has been defined by many accounting scholars in various forums. There is no one watertight definition of cost accounting, but the various definitions all point to certain common aspects about the subject. Below are some definitions by certain authorities : “That part of management accounting which establishes budgets and standard costs and actual costs of operations, processes, departments or

Accounting Essay 727 Words

727 words - 3 pages The future of the accounting profession will be a period of increased change and continuous development. The industry will require new levels of business flexibility and competition will intensify because new industry entrants will outsource and automate accounting, audit, and tax professionals, especially for routine and lower-value services. Financial service companies, banks, software and Internet firms will soon offer an increasing amount of

Accounting Essay 1305 Words

1305 words - 6 pages AN OVERVIW OF CREATIVE ACCOUNTING AND WINDOW DRESSING Introduction: Every organization is expected to operate within the confinement of best practices or core competence at least, which has tendency of leading them to distinctive competence or exceptional practice. Since business operations center basically on finance, firms therefore take the accounting records of their organizations very serious as it determines their stay in industry or

Accounting Essay 762 Words

762 words - 4 pages Jack in the Box Unethical Accounting Business The article I have chosen to summarize highlights the accounting practices of a San Diego--based company, Jack in the Box, Inc. (NYSE: JBX). In addition to summarizing the article, I will discuss how the concepts of the article relate to my organization The Platinum Company Inc., including, making recommendations for improvement for my organization based on the article. Lastly, explain the