WORM FALICITATION

TO OUR PRESENTATION
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PLEAS WAIT
RESTORING
DATA
 WHY
ENRON, WORLDCOM
COLLAPSE
 THE NEW YORK TIMES
REPORT

WHY TOYOTA
CUT OFF
200000 JOBS
 CE
L D FA
O R
E W
H Y TH
W
TO ANSWER ALL THIS
QUESTION

IT I S
THE BURNING
ISSUE
WE ARE

Group – 15

11004- ISMILE HUSSAIN

11009- IQBAL HASAN
11010- SUVROTO
11033- SOROWAR
HUSSAIN
CREDIT GOES TO………
…

MD.ABDUS
SOBHAN
(COURSE COORDINATOR)
HIGHLIGHTS………

BRIEFING
ANALYSIS OUR CASE
Q: & ANS:
OUR FINDINGS
CONCLUSIONS AND
RECOMMENDATIONS
BRIEFING………

EARNINGS MANAGEMENT ?
A STRATEGY USED BY THE
MANAGEMENT OF A COMPANY TO
DELIBERATELY MANIPULATE THE
COMPANY'S EARNINGS SO THAT THE
FIGURES MATCH A PRE-DETERMINED
TARGET.

Continues
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WE THE ACCOUNTANT TRADES A
FINE LINE BETWEEN

JUST PREPARING
YOUR BOOKS
DEAR
SHAREHOLDERS
ANALYSIS OUR CASE……
…
WE WILL FOCUS THE EARNING
MANAGEMENT TACTIC FOR

BRISTOL MYERS
SQUIB CO.(A
PHARMACEUTICAL
CO.)
Q: & AN S………
Give Reasons why management resort to
extreme earnings management tactics –
• To meet analysts’ forecasts.
• Contractual reasons. To increase bonuses and/or to avoid
debt covenant violations.
• Implicit contracts. To increase earnings so as to receive
better terms from dealers. In BMS’ case, this seems unlikely
since dealers were pressed to accept excess inventory.
• The firm may have wanted to increase and/or smooth
earnings so as to increase proceeds from a planned equity
offering.
• Management may have held large amounts of ESOs. It
may have managed earnings so as to
increase or maintain share price then “pump & dump” the
ESOs
Q: & A NS conti nuin g……
…
Evaluate the effectiveness of stuffing the
channels as an earning management device.
Consider both single year & series of year.
From the standpoint of a single year, stuffing the channels
seems effective. This is because it is hard to
detect.
Such behaviour may possibly be detected through full
disclosure, such as sales by product, segment,
or region. Then, careful analysis may reveal unusual sales
patterns. Wholesalers may object if too much inventory is
forced upon them. Since wholesalers are not
formally BMS employees, it may be more difficult to keep them
from complaining to regulators or the
media. However, in BMS’ case, paying their carrying charges
may have been a device to avoid such
While stuffing the channels may be reasonably effective in the
short run.
 Q: & A NS conti nuin g……
…stuffing the channels is
• Over a series of years,
likely to be less effective for the following
reasons:
• Accruals reverse. Product stuffed into the
channels this year will reduce sales next year.
Continual stuffing is needed if the strategy is to
be maintained.
• Physical limitations. There may be limits on
wholesalers’ storage space.
Evaluate the effectiveness of cookie jar accounting as an earning
management device. What EM pattern did BMS appear to be
following by this tactic?

CREATING SUSPICIOUS RESERVE

FOR DISPOSAL OF UNNEEDED
PLANT OR DIVISION IN A HIGH
PROFIT YEAR AND TRANSFER IT
IN LOW PROFIT YEAR TO REDUCE
EXPENSE

EM PATTERN

SMOOTHING THE INCOME

CLOSIN G TH E WIN DOW ……
…
THANKS FOR
KEEPING
PATIENCE