Self Study
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Ethics and Earnings Management
This 3.0 credit course tackles the question: Is it ethical to “manage” the earnings number – that is, to use legitimate discretion in the preparation of the financial statements to manage the numbers in a way that serves the interests of the manager independent of whether it serves the interest of the firm’s owners? We begin by creating an ethical framework based on the professional code of ethics. We then cover the what, why, how and when of earnings manag ement behavior, describ ing and illustrat ing the variety of ways in which managers use their discretion in operating, investing, financing, and reporting decisions to influence the financial reports . In the vast majority of these cases , we rely on real - world examples, taken from publicly - available financial statements that received unqualified audit opinions. For the various categories of earnings management, we consider how they can be evaluated within the ethical framework we established in the beginning of the course. The result is an informed and thoughtful approach to assessing whether a given earnings management practice is consistent with professional ethics, a valuable tool whether you are an external auditor reviewing a set of statements, a preparer of the statements, or an outsider attempting to determine the usefulness of the statements.
Learning Objectives:
Upon successful completion of this course, participants will be able to:
● Describe the major elements of the accounting professional code of ethics.
● Define earnings management and link it to the elements of the code of ethics.
● Explain why earnings management is practiced.
● List and describe the two basic forms of earnings management: real and reporting.
● Identify common situations when earnings management is practiced.
● Use journal entries and ledgers accounts to prepare a complete set of financial statements.
● Explain how closing entries transition the financial statements from one period to the next.
● Define contra accounts and the ro le the y play on the financial statements.
● Define treasury stock and describe where it can be found on the financial statements.
● Demonstrate how the sale of non - inventory assets affects the financial statements.
● Discuss and illustrate the difference b etween the accrual - basis and cash basis of accounting.
● Demonstrate using several examples how net income on the income statement can be reconciled with net cash from operating activities on the statement of cash flows.
Course Number:
JP10
NASBA Field of Study:
Ethics
Level:
Basic
Author/Instructor:
Jamie Pratt
CPE Credits:
3
Prerequisites:
None
Advanced Preparation:
None
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