Reaching Into the Cookie Jar? Why Conservative Accounting Is Sometimes a Problem

In this article, we discuss four financial statement accounts in which overly conservative accounting has been used to create reserves for future income‐increasing earnings management. Due to the multiyear nature of this activity and the role of managers' discretion in many accounting choices,...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of Corporate Accounting & Finance 2015-07, Vol.26 (5), p.73-77
Main Authors: Caylor, Marcus L., Chambers, Dennis J.
Format: Article
Language:English
Subjects:
Accounting
Accounting procedures
Audited financial statements
Auditors
Earnings management
Skepticism
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In this article, we discuss four financial statement accounts in which overly conservative accounting has been used to create reserves for future income‐increasing earnings management. Due to the multiyear nature of this activity and the role of managers' discretion in many accounting choices, it can be very difficult for auditors to uncover such behavior. We report and interpret academic research demonstrating that this activity is somewhat common, and provide practical suggestions that auditors can use to identify it. Our article reinforces the notion that auditors need to be equally skeptical of overly conservative accounting choices as they are of aggressive accounting choices. © 2015 Wiley Periodicals, Inc.
ISSN:1044-8136
1097-0053
DOI:10.1002/jcaf.22066