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Tài liệu hướng dẫn ôn thi CFA Level 1 phần Financial Reporting and Analysis: Applications and International Standards Convergence | The following is a review of the Financial Reporting and Analysis principles designed to address the learning outcome statements set forth by CFA Institute . This topic is also covered in Financial Reporting Quality Red Flags and Accounting WARNING SIGNS Study Session 10 Exam Focus This review covers a broad array of methods to manipulate earnings through the choice of accounting methods and estimates. There are some long lists that you cannot be expected to replicate. You should however understand every point on every list how income or balance sheet items are affected and why the indicated warning sign suggests accounting manipulation. With this in mind focus strongly on the warning signs of various accounting irregularities. Remember firms may manipulate earnings to decrease or increase them. Firms may artificially decrease earnings in periods of good earnings growth in such a way that they can be stored only to reappear in a future period when results would have otherwise fallen short of expectations. LOS 40.a Describe incentives that might induce a company s management to overreport or underreport earnings. Firms are motivated to manage earnings because of the potential benefits. Management may be motivated to overstate net income to Meet earnings expectations. Remain in compliance with lending covenants. Receive higher incentive compensation. Managing earnings can also involve understating net income. Management may be motivated to underreport earnings to Obtain trade relief in the form of quotas or protective tariffs. Negotiate favorable terms from creditors. Negotiate favorable labor union contracts. Firms may also be motivated to manage the balance sheet. For example by overstating assets or understating liabilities the firm appears more solvent. Conversely a firm might understate assets or overstate liabilities to appear less solvent in order to negotiate concessions with creditors and other interested parties. A firm may also manage its balance sheet in
