Identify the strengths and weaknesses of discretionary accruals models to identify earnings manipulation:
Identify the strengths and weaknesses of discretionary accruals models to identify earnings manipulation:
Discretionary Accrual = non-obligatory expense (such as an anticipated bonus for management) that is yet to be realized but is recorded in the account books.
Accrual Accounting = an accounting measure that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company’s current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with the expectation of very small operations.
This method provides a more accurate picture of the company’s current condition, but its relative complexity makes it more expensive to implement. This is the opposite cash accounting, which recognizes transactions only when there is an exchange of cash.
This method arose out of the increasing complexity of business transactions and a desire for more accurate financial information
Selling on credit and projects that provide revue streams over a long period of time affect the company’s financial condition at the point of the transaction.
Cash and Accrual methods vie transactions differently
Accrual Accounting recognizes that the company will receive the money from the transaction, almost certainly, in the future. Therefore the accrual accounting methods recognizes the transaction at the point in which it takes place rather than when the cash is received.
Do Discretionary Accruals Help Distinguish between Internal Control Weaknesses and Fraud?
Investigation of the effectiveness of
Discretionary Accrual = non-obligatory expense (such as an anticipated bonus for management) that is yet to be realized but is recorded in the account books.
Accrual Accounting = an accounting measure that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company’s current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with the expectation of very small operations.
This method provides a more accurate picture of the company’s current condition, but its relative complexity makes it more expensive to implement. This is the opposite cash accounting, which recognizes transactions only when there is an exchange of cash.
This method arose out of the increasing complexity of business transactions and a desire for more accurate financial information
Selling on credit and projects that provide revue streams over a long period of time affect the company’s financial condition at the point of the transaction.
Cash and Accrual methods vie transactions differently
Accrual Accounting recognizes that the company will receive the money from the transaction, almost certainly, in the future. Therefore the accrual accounting methods recognizes the transaction at the point in which it takes place rather than when the cash is received.
Do Discretionary Accruals Help Distinguish between Internal Control Weaknesses and Fraud?
Investigation of the effectiveness of