...Conservative Recognition or Cookie Jar Reserves? A Case Study Analysis July 5, 2013 Case Summary: Nick O’Brian has just finished his college degree and has started working for his aunt’s software company, O’Brian Software. Nick was hired as a junior auditor and has only been on the job for a couple of months. His aunt Amelia started the company as a small firm many years ago and finally went public after the company had grown tremendously. She holds the CEO position and runs the bulk of the business operations. However, Amelia O’Brian does not have a sufficient understanding of the company’s accounting procedures and therefore is not involved in the company’s accounting branch. In general the company seems to function with an air of honesty and integrity. Although the company is family owned, all of the business decisions are made with the consent of the audit committee of the board of directors. Furthermore, Lee Marchetti, the company’s CFO keeps a tight eye on all the financial activity of the company and is recognized as being a trustworthy individual who can ensure that the company’s controls are watertight. The situation is like this: While reviewing some of the company’s software revenue recognition data Nick got the feeling that the estimates were too conservative based on what the company was actually bringing in. He felt that it was possible that the company was creating “cookie jar” reserves to inflate earnings when times weren’t so good. This was especially...
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...FOR CONSERVATIVE RECOGNITION OR COOKIE JAR RESERVES Summary: O’Brian Software is a family software firm started by Amelia O’Brian. She started the company on a very small scale many years ago, but it has grown tremendously over time. The company went public and she now holds the position of chief executive officer at the company, while managing the majority of the business operations herself. Nick, who is Amelia’s nephew and a recent graduate with an accounting degree, began working for Amelia’s company. Nick was inducted as an auditor at junior level for the company and has been working only for a few months now. Amelia O’Brian has been facing issues because she does not have a sufficient understanding of the accounting procedures used in her company and her involvement with the company’s accounting function is very limited. Overall, the company has exhibited qualities of honesty and integrity in all of its functions. Though the company is owned and managed by the O’Brian family, all the important decisions are finalized only by proper discussion and final approval of the board of directors audit committee. All financial activities and transactions in the company are run by its CFO, Lee Marchetti. He is recognized as a trustworthy executive who ensures tight internal checks and controls on company’s finances. Current situation: In the process of reviewing the company’s financial statements, Nick recognized some issues with software revenue recognition. He had...
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...Case 1: Conservative Recognition or Cookie Jar Reserves SUMMARY OF THE FACTS Parties Involved: Aunt Amelia – Founder of O’Brian Software, Nick’s aunt and inexperienced in accounting. Nick O’Brian – Junior Internal Auditor, recently college graduate, nephew of the Lee Marchetti – Chief Financial Officer of O’Brian Software. After recently graduating college two months prior, Nick O’Brian is hired as a Junior Internal Auditor for his Aunt Amelia’s company, O’Brian Software. O’Brian Software has been in operations for five years and is a multi-million dollar publicly traded company that provides both software and consulting services to its clients. Although this is Nick’s first position at the company, he’s been involved since the very beginning of this family venture, since family members owned the majority of the stock. Realizing “her specialty is software, not accounting “, Aunt Amelia hires Lee Machete to be Chief Financial Officer (CFO) of O’Brian Software after the firm’s initial public offering (IPO) three years ago. Nick notices a significant amount of unearned revenue the balance sheet and wonders if O’Brian Software is being overly conservative in estimating the amount of deferred income. After having a difficult understanding the firm’s methodology for revenue recognition, Nick decides to talk to Marchetti. In the meeting with Marchetti, Nick states what worries him. “Overly conservative reporting could leave the impression we’re trying to create...
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...influence on science. The Conservative Party are a political party who won their way through to win and become the government party of England. This strong influential political group, is very powerful amongst the British public and their significant and dominate leaders, help run the country and especially the main leader of the political group- David Cameron who it’s the main leader is known for being the public speaker amongst the groups. Within this strong dominating political group, it is evident that this particular political group has a huge influence upon science. The conservative party, have the control to decided how much attention a particular topic should have, they also have the power to decide how much money each scientific development requires. For example one of the aims of the Conservatives is to help within the National Health Service, and one of the parties strong inspirations, it that they will be donating £6 billion, towards healthcare, to improve the standards of hospitals and treatments. Therefore, this political group has a huge influence on science, mainly due to the amount of power and control the party have themselves and also due to the fact that they have the correct group of people who have specific knowledge and the background information related to the new scientific developments. In conclusion, due to the amount of knowledge, having the correct group of people, including scientists and doctors, the conservative party have the correct sources...
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...Are British Prime ministers as powerful as is sometimes claimed? [40] It is often argued that in this day and age, Prime ministers are almost untouchable within the British political system, due to the shear number of powers that the Prime minister holds, and the prerogatives that he utilises. However, due to a handful of checks and balances on the government, and the Prime minister not being separated from the political system, which means he or she is liable to these checks and limitations, the Prime minister may therefore not be perceived as all that powerful. As previously mentioned, the Prime minister enjoys a collection of powers within the UK political system. Firstly, the prime minister has this huge amount of power due to the fact that they are both part of the executive branch of government and the legislature, due to the fusion of powers within the British political system. This means that they are able to create law and then use their representation in the legislature to force through this law. For example, when Tony Blair won a landslide victory in 1997, winning 179 seats. As a result of this, he was not beaten in the commons until 2005, when they rejected his proposition on terror laws. Tony Blair can also be used as another example of how Prime ministers are as powerful as is sometimes claimed. Prime ministers have many prerogative powers that are granted to them by the Queen as head of state. For example, in 2003, when Tony Blair utilised these prerogatives...
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...Labour and Constitutional Reform ✓ Labour’s Reforms ✓ The Changing Constitution ✓ Party Views and Manifestoes ✓ Assessment and Evaluation ✓ Evidence 1. Labour’s Reforms o The constitutional reforms initiated by the Labour Government elected in 1997 together promise to transform the institutional structure of the United Kingdom. ▪ The Scottish Parliament and the Welsh Assembly are the most tangible signs of this transformation but other constitutional reforms are either in being or well under way …… ▪ including the Human Rights Act of 1998 (incorporating the European Convention on Human Rights), ▪ a directly-elected mayor and assembly for London, ▪ a reformed House of Lords ▪ and Freedom of Information legislation. ▪ Although reform of the electoral system for Westminster now seems a somewhat distant prospect, the 1999 elections to the Welsh Assembly, to the Scottish Parliament and to the European Parliament were all conducted using electoral systems very different from the traditional first-past-the-post method. ▪ Referendums have been widely used, and more promised o Lecture by the Lord Chancellor, Lord Irvine of Lairg, to the Constitution Unit, Westminster. 8 December 1998 o No other Government this century has embarked upon so significant or wide-ranging a programme of constitutional reform as the New Labour Government...
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...Professor Paul Zarowin - NYU Stern School of Business Financial Reporting and Analysis - B10.2302/C10.0021 - Class Notes Revenue Recognition - Special Issues In most cases, revenue recognition is straightforward. Revenue is recognized when two conditions are met: (1) it is earned (i.e., performance is complete), and (2) cash collection is (reasonably) assured. RCJ (pg. 46) refer to these as the critical event and the measurable conditions, respectively. In this module we will discuss some exceptions to the general case. We will focus on cases where either of the two assumptions breaks down. These cases fall into two categories. In the first category, performance takes place over more than one accounting period; thus, revenue must be allocated across the periods. This is referred to as Along-term contracting@. There are two accounting methods used in this case, the percentage of completion method and the completed contract method. In the second category, cash collection is uncertain, and revenue recognition defaults to a de facto cash basis. There are also two accounting methods used in this case, the installment method and the cost recovery method. The important point to remember in each situation is that the accounting method choice affects both the B/S and the I/S, and thus any performance measures or ratios constructed from the financial statements. Thus, analysts must understand how the accounting method choice affects the reported numbers. Percentage...
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...CHAPTER 18 Revenue Recognition ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis *1. Realization and recognition; sales transactions; high rates of return. 1, 2, 3, 4, 5, 6, 22 1 1, 2, 3 1 1, 2, 3, 4, 5, 7, 8, 9 *2. Long-term contracts. 7, 8, 9, 10, 11, 12, 22 2, 3, 4, 5, 6 4, 5, 6, 7, 8, 9, 10 1, 2, 3, 4, 5, 6, 7, 14, 15, 16, 17 1, 2, 3, 6 *3. Installment sales. 13, 14, 15, 16, 17, 18, 19, 20, 21, 22 7, 8, 9 11, 12, 13, 14, 15, 16 1, 8, 9, 10, 11, 12, 15 1, 2, 3 *4. Repossessions on installment sales. 8 13, 17, 18 10, 11, 12, 13, 14 *5. Cost-recovery method; deposit method. 13, 22, 23, 24 10 15, 16 8, 9 *6. Franchising. 22, 25, 26, 27, 28 11 19, 20 10 *7. Consignments. 29 12 21 *This material is dealt with in an Appendix to the chapter. ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives Brief Exercises Exercises Problems 1. Apply the revenue recognition principle. 1 1, 2, 3 2. Describe accounting issues for revenue recognition at point of sale. 1 1, 2, 3 1 3. Apply the percentage-of-completion method for long-term contracts. 2, 3 4, 5, 6, 7, 8, 9 1, 2, 3, 4, 5, 6, 7, 16, 17 4. Apply the completed-contract method for long-term contracts. 4, 5 4, 8, 9, 10 1, 2, 3, 5, 6, 7, 15, 16, 17 5. Identify the proper accounting for losses on long-term contracts. 6 10 5...
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...18 REVENUE RECOGNITION IFRS questions are available at the end of this chapter. TRUE-FALSe—Conceptual Answer No. Description F 1. Recognition of revenue. T 2. Realization of revenue. T 3. Delayed recognition of revenue. F 4. Recognizing revenue when right of return exists. T 5. Recognizing revenue prior to product completion. F 6. Use of percentage-of-completion method. T 7. Input measure for contract progress. T 8. Reporting Construction in Process and Billings on Construction in Process. F 9. Construction in Process account balance. F 10. Recognition of revenue under completed-contract method. T 11. Principal advantage of completed-contract method. F 12. Recognizing loss on an unprofitable contract. F 13. Recognizing current period loss on a profitable contract. T 14. Recognizing revenue under completion-of-production basis. F 15. Recording a loss on an unprofitable contract. F 16. Deferring revenue under installment-sales method. T 17. Deferring gross profit under installment-sales method. T 18. Classification of deferred gross profit. F 19. Recognizing revenue under cost-recovery method. T 20. Recognizing profit under cost-recovery method. Multiple Choice—Conceptual Answer No. Description c 21. Revenue recognition principle. b 22. Definition of "realized." a 23. Definition of "earned." b S24. Revenue recognition representations. d P25. Definition of recognition. b P26. Revenue recognition principle. ...
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...© 2000 American Accounting Association Accounting Horizons Vol. 14 No. 2 June 2000 pp. 235-250 Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators Patricia M. Dechow and Douglas J. Skinner Patricia M. Dechow is an Associate Professor and Douglas J. Skinner is a Professor, both at the University of Michigan. SYNOPSIS: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and reguiators. Practitioners and reguiators often see earnings management as pervasive and probiematic—and in need of immediate remediai action. Academics are more sanguine, unwiiiing to beiieve that earnings management is activeiy practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management. INTRODUCTION Despite significant attention on earnings management from regulators' and the financial press,^ academic research has shown limited evidence of earnings management. While practitioners and regulators seem to believe that earnings management is For example, SEC Chairman Levitt delivered a major speech on earnings management in the fall of 1998 in which he advocated a niunber of initiatives to improve the quahty of financial reporting (Levitt 1998). As part...
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...Fifth of July Character Arc Fifth of July is a play written by Lanford Wilson about a non-conventional, and quite dysfunctional, family of friends living in mid-Western America in the 1970s, with themes of family, friends, war, loss, and the future. Each of the characters is coping with their own individual circumstances, and when these struggles are all brought together under one roof, tensions rise. June is dealing (and has been dealing) with the pressures and hardships of being a single mother. Aunt Sally is coping with the loss of her beloved husband, Uncle Matt, and struggling to find the perfect place to scatter his ashes. Ken is having a battle within himself about selling the family home: on one hand, he is struggling financially and wants to ensure a secure future for him and his partner, Jed; on the other, he is feeling guilty for the thought even crossing his mind, considering his family grew up in that home and it holds sentimental value. This, coupled with the adjustment to his post-war state of being, takes a toll on Ken and puts him under incredible stress. Ken is attempting to sell his house, “The Talley Place,” to his friends John and Gwen Landis in order to have financial security and opt out of a teaching position at a school. As the story develops, Ken gets more and more anxious to sell the home, despite his sister June intervening and explaining that John and Gwen wouldn’t appreciate the home and maintain it properly. It is in the final scene...
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...overseas during the war. The right-wing Conservative leader thought to remain prime mister, expecting public gratitude. However, the English vote for parties, not people. There was a demographic impact within Britain that led to the swing of leadership from a more capitalist based party to a more socialist based party. The people of Britain were haunted by the 1930s, a world in which “seldom the all-importance of food is recognized. You see statues everywhere to politicians, poets, bishops, but none to cooks or bacon-curers or market gardeners”, as described by Orwell. A time in which the poor were overlooked and undermined, a land in which the people “bred in the slums can imagine nothing but the slums.” Why was Churchill, being the national hero that he was, rejected by the Britons? Was it the failure of the Conservatives, which gave rise to Labour; or was it the rise of Labour which led to the failure of the Conservatives? These are some key aspects that this essay will attempt to consider. This paper will focus on how the rise of Labour, through their efforts locally, won over the population in order achieve a significant victory. Conducive to that change in leadership was the lack of Tory focus on social-policy and attention towards the working-class, which emanated from the lack of party politicking on the part of Churchill himself. Churchill was the leader of the Conservative Party, who governed the country in 1940. The Conservative Party is essentially a capitalist...
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...House of Lords. Can remove the government of the day in a vote of confidence. E.g. 1979 vote of no confidence in James Callaghan's Labour government. However, in reality it has only a limited influence over legislation due to executive domination of the House of Commons: the Westminster voting system offers the government majority control over the Commons and the party discipline system allows ministers to control backbenchers. Formal mechanisms to ensure accountability like Question Time and select committees are often relatively weak. But, declining levels of party unity have led to more independent, educated and assertive backbenchers, who are able to exert a greater influence. E.g. Conservative backbench rebellion 2011 on having an EU membership referendum, where a massive 81 conservative MPs voted for having it. However, counterbalancing this is a growing trend for landslide majorites, which allows governments to resist pressure from backbenchers and opposition. The formal powers of the House of Lords are, in contrast, quite unimpressive. Lords can only delay legislation from the Commons for a year maximum. Cannot delay money-related bills. Cannot remove the government of the day and can only veto a very limited range of matters like the sacking of senior judges and delay of Westminster elections. BUT, in practice, the House of Lords often has a greater influence over the government than the Commons. E.g. Tony Blair's government was never defeated in the Commons...
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...victory in the 1979 election. Source 3 therefore strongly agrees with the statement. Pugh also says that if 'Callaghan held an election in the autumn of 1978, he might well have won.' This shows that Callaghan was personally more popular than Margaret Thatcher. Even though this was the case, the Conservatives had a parliamentary majority. This therefore suggest that it was the more short term reasons like the winter of discontent that gave Margaret Thatcher her victory. Additionally, the winter of discontent lead to a number of strikes by public workers who felt that they were being mistreated by the government following the cuts in public expenditure. These strikes lead to industrial chaos which in turn made Callaghan's government lose support which gave Thatcher an advantage. Another result from the industrial chaos was an increase in unemployment. Unemployment rose to more than 1.6 million by 1978. Source 2, a conservative campaign poster displays the mass unemployment. As Conservative is the opposing the party, the source would be biased and therefore would make Labour seem weak, 'Labour isn't working' and give the message that Britain would be in a better state under the Conservative party....
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...Did Thatcher break society and can the big society concept fix it? Stephen Hunt Politics With Marketing Management 1st May 2012 Contents Page 2 ‘There is no such thing as society’ 4 Thatcher in power 12 Labour and the big crash 15 the Big society concept 22 Conclusion 25 Bibliography ‘There is no such thing as society’ ‘There is no such thing as society;’ this one sentence spoken by Margaret Thatcher in an interview to woman’s own in 1987 was seen by her many critics as capturing the essence of her political mission. They believed that she wanted to remove the sense of community in Britain. The Thatcher ethos was seen as negativity towards the state’s role in people’s lives that it was up to each individual to look after him or herself. The Thatcher era was seen by many as about winners and losers, the winners were well rewarded with lower taxes, a property boom, rising wages, opportunities to purchase council houses and shares in the privatized companies at discount rates. If you had a job and money under the Thatcher government, there was multitude of opportunities. Whilst those who were without jobs and were dependant on welfare saw industries such as manufacturing decreasing in size, welfare payment cut in size, training being either cut or unfunded. They were expected to pay catch up with the winners on their own initiative without much help from the government. Much of the opposition came from the left, who Thatcher herself had little time for and one...
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