Business Commons^™

Earnings Manipulation: A Report By Robert Lavine On The Business Ethics Research Of Kenneth Rosenzweig And Marilyn Fischer, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

This column by Robert LaVine in the Chartered Accountants Journal of New Zealand reports on the research of University of Dayton professors Kenneth Rosenzweig and Marilyn Fischer, "Is Managing Earnings Ethically Acceptable? Surveys Show Age and Seniority Affect Attitudes on Earnings Management," >>> published in the journal Management Accounting.

Is Managing Earnings Ethically Acceptable? Surveys Show Age And Seniority Affect Attitudes On Earnings Management, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

Is managing earnings through accounting methods ethically acceptable? That's the question we recently asked a sample group of management accountants. The response to the survey was enlightening. Our survey was designed as a follow-up and extension of the research done by Bruns and Merchant and published in Management Accounting in August 1990. They found that managers disagreed considerably on whether earnings management is ethically acceptable. They also found that in general the respondents thought manipulating earnings via operating decisions was more ethically acceptable than manipulation by accounting methods. Bruns and Merchant were disturbed by these findings. They were concerned that …

Report Earnings Accurately, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

As authors of the March article, “Is Managing Earnings Ethically Acceptable?,” we wish to thank Alfred M. King for his letter in the April issue questioning some of the contentions in our article. In a time when corruption seems to be rampant in many aspects of our national life, it is important for accountants to discuss openly what are their ethical responsibilities, and what are the limits to those responsibilities. The credibility of accounting numbers is vital to our success as a profession and as individual accountants. There will be no demand for accounting service if accounting information is not …

How Corporate Culture Impacts Unethical Distortion Of Financial Numbers, Joseph F. Castellano, Kenneth Y. Rosenzweig, Harper A. Roehm

Joseph Castellano

The recent accounting scandals have highlighted the critical role that investor confidence in the accuracy and lack of distortion of accounting data plays in the health of capital markets and, indeed, the whole economy. The legal and moral culpability of top-level company managers (as well as auditors) is an issue that will be addressed by the nation in the coming months. Whether or not legal sanctions are imposed on managers, it would be well to examine some of the reasons managers may feel compelled to distort accounting numbers as well as engage in other actions that damage the interests of …

The Abcs Of Communicating Results, Deborah S. Archambeault, Morgen Rose

Deborah Archambeault

Communicating results is an integral part of the internal auditor's job, and The IIA's International Standards for the Professional Practice of Internal Auditing recognizes its importance by specifying in Standard 2420 that communications should be "accurate, objective, clear, concise, constructive, complete, and timely." In its 2009 survey. The Biggest Internal Audit Challenges in the Next Five Years, Protiviti, a global consulting firm, ranked communication with management and the audit committee as one of the biggest challenges facing internal auditing through 2012. Their subsequent 2010 Internal Audit Capabilities and Needs Survey identified presentation skills as the top "need to improve" personal …

Standard Costing Variances: Potential Red Flags Of Fraud?, Cecily A. Raiborn, Janet B. Butler, Lucian Zelazny

Lucian Zelazny

This article focuses on how standard cost variances can be used in detecting potential fraudulent activities. Each primary type of variance (material, labor, and overhead) is addressed with a discussion of possible inappropriate causal factors. Additionally, internal controls, graphic techniques, and other methods that can be implemented to combat fraud are provided.

Protecting Reasonable Expectations: Mapping The Trajectory Of The Law, Edward J. Waitzer, Douglas Sarro

Edward J. Waitzer

The doctrine of reasonable expectations has evolved into a powerful tool for judicial and regulatory activism and, as a result, a bellwether for the trajectory of the law. The concept has broadened — both in scope and in the range of potential claimants. Yet it has been used to achieve goals that are remarkably consistent across different areas of law: first, to require powerful actors to treat stakeholders fairly, which entails treating them with honesty and avoiding actions that would impose unnecessary or disproportionate costs on them; second, to uphold the integrity of legal or regulatory regimes by remedying actions …

Does Beating Cash Flow Benchmarks Reduce The Cost Of Debt?, Mauricio A. Melgarejo

Mauricio Melgarejo

This paper examines whether beating previous year cash flow values and analysts' cash flow forecasts impact the firms' cost of debt. Creditors are expected to be more concerned about firm solvency than firm profitability. Accordingly, if lenders have any reference point it may be related to cash flow numbers. This study finds that firms that beat analysts' cash flow forecasts have smaller initial bond yield spreads in the next period and a decrease in their initial bond yield spreads between consecutive periods. This effect is more pronounced at short maturities and for observations with less informative earnings. Firms with lower …

Agency Activism As A New Way Of Life: Administrative Modification Of The Internal Revenue Code Through Limited Issue Focused Examinations, W Edward Afield

W. Edward "Ted" Afield

In the name of increasing efficiency and better utilizing limited resources, the IRS has begun to adopt audit policies that overly favor taxpayers and greatly hinder the IRS’s ability to perform thorough audits. Highlighting this trend is a relatively new audit technique used by the Large to Mid-Size Business Division (LMSB), known as the Limited Issue Focused Examination (LIFE) Process. Under LIFE, the LMSB has attempted to involve taxpayers in the audit process by sharing responsibility for timely completion of the audit and has attempted to streamline the audit by reducing the scope of issues examined and applying materiality thresholds …

Nol Poison Pills: Using Corporate Law For Tax Purposes, Sarah J. Webber, Karie Davis-Nozemack

Sarah J Webber

Hundreds of thousands of corporations report net operating loss (NOL) carryovers every year.1 Corporations, with the benefit of NOL rules, may turn disappointing losses into favorable tax results. During economic recovery, corporations are in better position to fully utilize the benefits of NOLs generated in prior years. NOL usage is not without peril, however. Corporations should carefully monitor corporate ownership changes to ensure that NOLs are not lost to the NOL trafficking rules. Under the NOL trafficking rules, excessive shareholder turnover triggers substantial NOL limitations. Unfortunately, corporations are not in control of their shareholder turnover, and therefore not in complete …

Staggered Boards And Long-Term Firm Value, Revisited, K.J. Martijn Cremers, Lubomir P. Litov, Simone M. Sepe

Lubomir P. Litov

Shared Auditors In Mergers And Acquisitions, Dan Dhaliwal, Philip Lamoreaux, Lubomir P. Litov, Jordan Neyland

Lubomir P. Litov

The Interrelationships Between Reit Capital Structure And Investment, Jamie Alcock, Eva Steiner

Eva Steiner