Don’t leave your hand in the cookie jar / Robert McDonald.
John Davies, assistant controller, was concerned about an upcoming meeting with his boss about year-end accounting adjustments. He had noticed over the past two years that the controller was adding to three reserve accounts: bad debt, product returns, and warranties. “Cookie jar” accounting came to...
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| Main Author: | |
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| Format: | Ebook |
| Language: | English |
| Published: |
London :
SAGE Publications Ltd.,
2017.
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| Series: | SAGE Knowledge. Cases.
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| Subjects: | |
| Online Access: | SAGE |
| Summary: | John Davies, assistant controller, was concerned about an upcoming meeting with his boss about year-end accounting adjustments. He had noticed over the past two years that the controller was adding to three reserve accounts: bad debt, product returns, and warranties. “Cookie jar” accounting came to mind as John thought through his arguments against the practice. Cookie-jar accounting sets aside reserves in good times to be dipped into in bad times when the firm needs a boost to earnings--a classic example of earnings management. John knew the controller would cite conservatism in accounting, industry practice, and materiality in his defense of the added reserves. John was concerned that an ulterior motive for the controller was to present earnings growth to the venture capital firms that had funded the start-up firm. There still is a gray area that allows differing interpretations of what should be recorded for these estimates. In this case, the student will balance off IMA Ethical Standards, SEC rulings on reserve accounting, conservatism in accounting, industry practice, and materiality to arrive at a solution of the proper accounting for the three accounts. |
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| Item Description: | Originally Published In McDonald, R. (2011). Don’t leave your hand in the cookie jar. IMA Education Case Journal, 4(4), Article 2. |
| Physical Description: | 1 online resource. |
| ISBN: | 1526427265 9781526427267 |