Course 8 - Earnings Management (Video) (Course Id 1905)

This course is the final course in the 8-course series on financial reporting and analysis offered by PRATTedu.  In this single video course, Professor Pratt first defines earnings management and then introduces and illustrates the two basic forms: real earnings management and accruals earnings management.  He illustrates each form, provides a number of examples, discusses whether they are appropriate and then creates a framework for accruals earnings management that identifies and relates the four general areas (materiality, disclosure, classification and measurement) where it is practiced.  The video concludes with a thorough discussion of why earnings management is practiced and common strategies used by companies.  Throughout the video real-world financial statements and footnotes are analyzed. Companies featured include General Electric, Merck, Harley Davidson, Tesla, AT&T, Volkswagen, Walt Disney and others.

Course Learning Objectives

• Define earnings management.
• Differentiate between real earnings management and accruals earnings management.
• Identify the four general areas where accruals earnings management is practiced and be able to recognize examples of each.
• Explain why earnings management is practiced.
• List and identify the popular strategies used by companies to practice earnings management.

1. Define earnings management.
2. Differentiate:
a. Real earnings management
b. Accrual earnings management
3. Identify and illustrate general areas where accruals earnings management is practiced.
a. Materiality
b. Disclosure
c. Classification
(1) Operating vs. non-operating
(2) Debt vs. equity
(3) Short-term vs. long-term
d. Measurement
(1) Revenue recognition and matching
(2) Valuation of assets and liabilities
4. Why is earnings management practiced?
5. List and identify common earnings management strategies
a. Overstate current earnings
b. Understate current earnings
(1) Build hidden reserves
(2) Take a bath
c. Off-balance sheet financing