Tutorial in Week 9 (based on Week 8 Lecture) beginning 23rd April 2018

TOPIC: Earnings Management

Q1 For an income strategy of taking a bath, the probability of the manager receiving a
bonus in a future year rises. Explain why?

Q2 A manager increases reported earnings by $1,300 this year. This was done by
reducing the allowance for credit losses by $500 below the expected amount and
reducing the accrual for warranty costs expense to $800 below the expected amount.
Explain why, other things being equal, this will lower next year’s earnings by $1,300.

Q3Which accruals are most suitable for earnings management? Provide some examples
of account balances that have some (little) flexibility to manage

Q4 How would you estimate if provision for doubtful estimates has been managed

Q5 Complete Q8 from Scott (pdf copy on LMS). In addition discuss: Would an auditor
go along with GE’s use of earnings management? What can act as a constraint on
earnings management.