Finance and accounting assignment: Advanced financial reporting & regulation

Finance and accounting assignment: Advanced financial reporting & regulation Assignment example
Masters
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Finance & Accounting
Pages 10 (2510 words)
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Student’s Name: (Name) Student’s ID: (ID Number) Coursework: Finance and Accounting Assignment: Advanced Financial Reporting & Regulation Dated: (Date) Table of Contents Content Page Introduction to earnings management……………………………………………

Introduction

11 PSA Peugeot and Vodafone cases……………………………………………… 14 References……………………………………………………………………… 17 Question 1: A common technique to manage earnings is to ‘stuff the channels’, that is, to ship prematurely to dealers and customers, thereby inflating sales for the period. A case in point is Bristol-Myers Squibb co. (BMS), a multinational pharmaceutical company head-quartered in New York. In August 2004, the Securities Exchange Commission (SEC) announced a USD 150 million’s penalty levied against BMS. This was part of an agreement to settle charges by the SEC that the company had engaged in a fraudulent scheme to inflate sales and earnings in order to meet analysts’ earnings forecasts. According to the SEC, the company also engaged in ‘cookie jar’ accounting. That is, it created phony reserves for disposals of unneeded plants and divisions during high-profit quarters. These would be carried to decrease the operating expenses in results of the quarters where BMS’ income or earnings figures are insufficient to meet the forecasted amounts. Required: a. Using relevant academic papers, discuss the incentives why managers would resort to extreme earnings management technique such as this. b. Critically evaluate the effectiveness of ‘stuffing the channels’ and ‘cookie jar accounting’ as earnings management devices. ...
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