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Finance and accounting : Advanced financial reporting and regulation - Assignment Example

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Finance and accounting : Advanced financial reporting and regulation

Management would often resort to extreme earnings’ management techniques in order to inflate sales and earnings so that meet the analysts’ earnings forecasts (Kumar, 2008). One way of inflating sales and earnings is through the use of window dressing marketing strategy. Department stores normally resort to window dressing marketing strategies. Window dressing is placing top selling products on the store shelves. Consequently, customers would enter the store to buy the products displayed on the store shelves. Upon entering the store, the customers can observe and buy other not so popular products strategically located on certain store shelf locations. In accounting parlance, window dressing is presenting a more favorable financial report than the actual report of the business transactions. The aim of window dressing is to increase the revenues of the company. Another aim of window dressing is to show higher assets and lower liabilities than what is the actual assets amount or liabilities amount. To increase net profits, the company must show that sales increased. Stuffing the channels include delivering to goods to customers even though there is no sales order (Bejou, 2006). With the window dressing of the financial statements, the company presents a better or more favorable picture of the company (Bastos, 2010). ...
More banks will appropriate the company’s long term bank loan applications. More board of directors will approve the salary increases of the managers and line and staff employees. More residents will apply for job vacancies in the company. On the other hand, financial statements that show the company generated a net loss financial output will drive away affected parties. The customers will shift to buying from the competitors. The suppliers will shift to selling their products and services to other current and future customers. The board of directors will terminate the ineffective business managers and employees for their lackluster financial performances. The banks will disapprove the financially distressed company’s bank loan applications. b. Critical evaluation of the effectiveness of ‘stuffing the channels’ and ‘cookie jar accounting’ as earnings management devices. Stuffing the channels management strategy is not effective earnings management devices. Engaging in illegal acts must never be considered as normal business strategies. All illegal activities suffer from the possibility of being discovered. Upon discovery, the repercussions are very damaging to the fraudulent company (Zack, 2012). The recording of business transactions require compliance with accounting, tax and law requirements. In terms of accounting requirements, the recording of financial instructions requires compliance with international accounting standards. International accounting standards prohibit ‘stuffing the channels’ as an alternative management device. The standards require that no sales shall be recorded unless a sale had actually cropped up. Sales can be recorded when the customers accepts the sale, not when the products are delivered. ...Show more
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Advanced Financial Reporting and Regulation Subject: Tutor: April 8, 2013 Advanced Financial Reporting and Regulation Introduction Companies are required to prepare true amount of expenditures and profits in the accounting reports. The research delves on management strategies to improve the financial picture of the companies…
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