...The Managerial Compensation Responding to Earnings Manipulation Ruoyu Zhang** August 10, 2012 Abstract When the true earning in each period is private information to the agent, then the performance based pay provides the agent with incentive to misallocate the earnings to get more compensation. To address the concern of earnings manipulation problem, SEC imposed a strict disclosure regulation in 1993. An optimal managerial contract should be designed not only to provide the agent with an incentive to take actions that enhance the actual profitability of the firm, but also to minimize the agent’s incentive to falsify earnings reports. This paper uses a two-period model to demonstrate that the compensation scheme contingent on reported earnings cannot provide the agent with the incentive both to maximize earnings and to report earnings honestly. In the optimal contract, the principal must still tolerate some degree of earnings management. In addition, with the increase of the misrepresentation penalty, the principal would rather lower the incentive to make the agent work less but report earnings truthfully. I thank Professor Jean-Etienne De Bettignies and Professor Olena Ivus for valuable comments and suggestions. All errors are my own. ** MSc Candidate in Business Economics, Queen’s School of Business. Email: 11rz3@queensu.ca Table of Contents Abstract ..........................................................................................................
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...Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation Mahendra R. Gujarathi ABSTRACT: Diamond Foods is America’s largest walnut processor specializing in processing, marketing, and distributing nuts and snack products. This real-world case presents financial reporting issues around the commodities cost shifting strategy used by Diamond’s management to falsify earnings. By delaying the recognition of a portion of the cost of walnuts acquired into later accounting periods, Diamond Foods materially underreported the cost of sales and overstated earnings in fiscal 2010 and 2011. The primary learning goal of the case is to help students understand the anatomy and motivations of earnings manipulation. Specifically, students will have the opportunity to (1) apply the FASB’s Conceptual Framework to a real-world context, (2) determine the nature of errors and compute their numerical effects on financial statements, (3) understand motivations for earnings management and actions needed for managing earnings of future years, (4) explain the anatomy of financial reporting fraud by reconstructing journal entries, (5) prepare comparative financial statements for retroactive restatements, (6) explain the rationale for clawback provisions in compensation contracts, and (7) understand the difference between the real and accrual-based earnings management. Keywords: earnings management; financial statement fraud; restatements; error correction; clawback provision; Conceptual Framework...
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...Session 3: Basic Cost Terms and Concepts Article: Earnings management through real activities manipulation, Sugata Roychowdhury (2006) The research paper “Earnings management through real activities manipulation” by Sugata Roychowdhury analyses evidence on real activities manipulation in corporate earnings management to meet operational targets. Roychowdhury presents “abnormal real activities” in operations management by examine cash flows from operation (CFO), production costs and discretionary expenses. My paper will focus on how the evidence of real activities manipulation presented in the research paper is related to the concepts of opportunity and period costs. To identify how accounting and operational decision making is related to opportunity costs in earnings management, I oppose present period cost to future period costs in my paper. As accrual accounting is based on the revenue recognition principle manipulating real activities during the present year is often used to influence short-run earnings targets to avoid annual losses without realizing the opportunity costs of a decrease in long-run firm value. Managers engage in accrual manipulation by reason of attaching high values to abnormal accruals in their evaluation of opportunity costs. Short-term activities, i.e. altering financial reports to meet annual analyst forecasts, earn higher recognition than long-term upcoming costs by misleading stakeholders or influence contractual outcomes. Graham et al.’s survey...
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...Chiropractic Medicine Chiropractic is a very popular alternative medical treatment system. Chiropractors work with various parts of the body to ease pain, correct alignment issues and help provide the support the body needs to naturally heal itself. “The term “chiropractic” combines the Greek words cheir (hand) and praxis (practice) to describe a treatment done by hand.” Chiropractic care is centered around hands on therapy because of adjustments with the spine, the body’s main structure. According to research and the National Health Interview Survey (NHIS) cost data report, in 2007 chiropractic care was one of the most exercised form of complementary health practices. Over 18 million adults and 2 million children had expedited chiropractic medicine in a year’s time. With that being said, one of the main problems people have deal with lower back pain. However, chiropractic medicine is also used for sports injuries, job related injuries, pain management and natural relaxation. Not only is chiropractic services less invasive, but is also less expensive and nerve racking. For example, a patient with chronic lower back pain could benefit more from the chiropractic field rather than surgery or medication. The high risks and chances of improvement with surgical procedures vary with the patient. Also the time it can take to fully recover after a major surgery could be even more strenuous. Chiropractic care, in my opinion, should be ones first step to recovery because it comes...
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...Knuckle Cracking Have you ever had the urge to crack your knuckles? This “bad” habit has long been thought of as a contributor to joint trouble, particularly arthritis. Even though the mechanisms behind it aren't perfectly clear, research suggests habitual knuckle cracking is not a significant risk factor for arthritis, though it may have several other negative side effects (Kevin DeWeber, 2011). Though the exact mechanisms behind knuckle cracking are still debated, that popping sound is likely not from bone-on-bone contact. To keep them working smoothly, most joints are surrounded by a membrane filled with lubricating fluid and gases. When a joint is “cracked” an event called articular release occurs where the gases are thought to escape the membrane, causing the characteristic “pop!” sound associated with knuckle cracking (R., 1995). The same workings lie behind the “cracking” associated with fingers, wrists, ankles, and necks (R., 1995). Despite joint cracking being normal and fairly common throughout the body, knuckle cracking in particular has long been blamed as a contributor to painful arthritis. However research suggests habitual knuckle cracking isn't forceful enough to cause the wear and tear associated with arthritis (MARINA G. PROTAPAPAS, 2002) (Kevin DeWeber, 2011) (Jorge Castellanos). In fact, knuckle cracking might actually cause temporary relief in joint pain and reduce symptoms of arthritis, hence the popularity of such practices among chiropractors (Kevin...
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...In the world of advertisement the way the way words are used to describe products can be very misleading and it is the key to advertisement deception. For the past few days I have been watching commercials, and have seen these deceptive commercials in the advertisement industry. These commercials mislead people into thinking that these products are “wonder products” and these products will do everything they claim it says it will do. Recently, I was watching television and caught the new Roc Multi Correxion Cream, and it stated that it has five Anti Age Actions that will help moisturize the skin and make wrinkles disappear. What exactly are Anti Age Actions and how can they “dramatically” make someone look younger? The name of the product uses Correxion instead of Correction. This implies that it is not guaranteed to work so that’s why they spelled it differently. In addition, the little slogan or jingle says it corrects what aging you but doesn’t spell it out. It implies it is correcting you so it sounds like the name of the product. On another occasion I caught the AT&T commercial for the Iphone 3gs, and it states “the phone that changed everything”, but what did it really change if anything, except the price of the phone and the monthly bill costs. What could this phone possibly have changed; in the commercial they were very broad about that part. AT&T said they made the phone that changed everything even more amazing because not it was forty-nine...
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...Bullying Can you imagine getting punched and kicked by someone you don't even know? People calling you names and mocking you without knowing who you really are? I know most of us were once a victim of bullying. And I know some of us were the ones doing the hurting and name callings. If you are the bullied, trust me when I say, "It's not you, its them.", and if you are the bully, ask yourselves "What is wrong with me?" Being bullied does not mean that there is something wrong with you. Wearing baggy clothes and nerdy glasses is not a reason to be harassed. And your family's background is not a reason for someone to ridicule you. Nobody deserves to be treated that way. Have self-confidence, know your worth. Doing nothing or taking lots of sleeping pills such as sleepasils won’t change anything. Show minimal reaction to bullying. Do not show the bullies that you feel hurt if they do something that makes you uncomfortable; just walk off. Bullies gain satisfaction from making others feel hurt or uncomfortable, so giving them a reaction may only encourage them further. The bully wants attention and if you show them that they are emotionally hurting you, they will get more pleasure out of doing this. Don’t bully back. Fighting back just satisfies a bully and it is dangerous, because someone could get hurt. You are also likely to get in trouble. Bullies are just looking for attention. They might think bullying is a way to be popular or to get what they want. Most bullies are trying...
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...The Effects of Forgiveness Therapy Journal Article Revi Liberty University The Effects of Forgiveness Therapy Summary Emotional abuse is one of the lasting effects of spousal abuse that will last longer than any bruise. Long after the abuse, women tend to demonstrate many lingering psychological effects, as this type of abuse may represent a betrayal of trust that may lead to negative outcomes for the one being abused (Reed & Enright, 2006). Spousal psychological abuse is s horse of different colors to include criticizing, ridiculing, jealous control, threats of abandonment, harm, damage to personal property, and purposeful ignoring (Reed & Enright, 2006). Some lasting effects from the psychological abuse include depression, post-traumatic stress disorder, learned helplessness, and even ongoing resentment of the abuser. Out of many that suffer the emotional/psychological abuse, few seek treatment. There is little treatment recommended for this type of abuse as there is lack of evidence that any may work. Brief therapy is recommended with a focus on anger validation and interpersonal skill building, however, forgiveness therapy is a new form of treatment that focuses on forgiving an injustice and with helping with anxiety and depression as well as improving self-esteem (Reed & Enright, 2006, p.920). This therapy targets the ongoing resentment that can lead to the depression, anxiety, anger, and other psychological disparities (Reed & Enright, 2006...
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...Bullying has been a widespread headache in our school. Most of the riots and gang war started from bullying. Most of the schools bullying were just ignored, they even don’t take actions of the damages cause by bullying. I remembered from a parent in the school of my son where she shared what happened to her son inside the school. Her son was bullied from the school paper. Imagine his own pictures were the source of laugh in the whole campus and he is in high school level. Just imagine how embarrassing it is for him. For a month or two her son suffered from trauma and he stop for a while but came back to school after a long and several talk. Aside from that I also heard lots of news about bullying inside the school. Just the same the school did not do anything about it. I am really surprised that the school head and administration did not do anything about it. Anyway maybe because the school administration where not capable enough to handle such things and maybe they don’t have enough knowledge about it. Now that the law about Anti – bullying where passed, I guess school administration and heads can now be guided on what to do if such things occurs inside the school campuses. They just can’t ignore such things especially if it is the main reason why the students were having problem. I am glad that this law has been passed on; I hope and prayed that it will be used according to its purpose. Then served rightfully to those who deserved to be punished according to the law. Also...
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...If I had a choice between flying and being invisible, I would choose being invisible. I would choose invisibility because I have always wondered what people say when I leave the room. Many people act differently when you are not around. I will also like to look into the lives of others. I am not trying to be nosy, but I never really know what someone might need that they're not sharing with me. I will use my power as a way to help anyone in need. Many people are too proud to ask for help. I will be like a modern-day Robin Hood. If you and your family are in need of food or clothes, I will find a way to provide it for you. I am not going to lie, I will probably also scare a lot of people. I will move objects and allow people to think that there are actual ghost in their homes. I will sneak up on people and play lots of practical jokes. I would do this mainly to my family and friends, I will pop up next to them while they are watching scary movies dressed like the main character of the movie. I will open doors that are locked when they are home alone. I will pop up behind of them in the mirror while they are brushing their hair and disappear again. That's just my personality, I am a very playful person. I will also use my talent for good. I will try and change the mindset of certain individuals. Individuals such as CEOs of companies that make their money from abusing the lower-class, Gangsters, drug dealers, and child molester. I will make them think that they were...
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...Aristotle says that anger can be fair and I agree with him, but I do think that it should be handled as smart as possible. It is the constant struggle between too much and too little of everything that leads one to the paramount of lifestyles. When anger is used irrationality or in excess it will lead to chaos and pain not only to the holder but to the people around. I do believe that some situations are justified to be angry about, for example when an innocent is abused or killed. A situation does not necessarily need to be severe to be unjust. Just as an example, a family member, or anyone, steals items or money that you collected with sacrifice and effort. It is exceedingly important to know with what and when to be angry. This is the most difficult of decisions. Aristotle also believes that justice is a type of virtue. In other words, a just act is one of virtue. The lack of anger could result in a problematic society. If there were nothing to evaluate how we would then interact with one another? To say “live a life without anger” is as intense of a statement as saying “live a life without emotion”. So, it is ok to get angry, but by justifying the anger does not mean we should create a horrific scene and leave everyone with a well-funded memory of how things will end up if we are being teased or if things do not go our way. We should always try to seek peace and be the mature person without suppressing the anger. It’s a big challenge because this would include knowing...
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...Introduction In recent years, accountability and transparency in organizations, or lack there of, has been in the forefront of the media. ORNGE was an organization that lacked accountability and transparency. Amid the scandal of high salaries, patient care issues and international spending sprees, employees’ raised alarms for several years about their frustration with the practices of the organization and were turned away. ORNGE Air Ambulance ORNGE, formerly Ontario Air Ambulance Service, is the province’s only critical care air ambulance service. The province disbanded the public air ambulance service and replaced it with ORNGE, headed up by President and CEO, Dr. Chris Mazza who subsequently became the catalyst of the scandal at ORNGE. From 2009-2012 a series of unethical decisions were made by Dr.Mazza and the board of directors without proper oversight from Ministry of Health. Public money was used to invest and start-up for-profit companies which helped pay-out dividends to shareholders, executives and finance a personal loan for the CEO. In 2007, Keith Walmsley, who held a finance role at ORNGE, raised serious concerns to his superior at ORNGE and was told “what the Ministry (of Health) doesn’t know won’t hurt them.” In 2008, after he was let go by ORNGE, Walmsley complained to the provincial finance ministry. Walmsley, and many other employees of ORNGE, are examples of whistleblowers. A whistleblower is a person who informs on another or makes public disclosure...
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...Unit 10 Utilising strategies A strategy is a plan. Any strategies or plan offer; * Consistency * Opportunities to reflect * Opportunities to develop * Improved services … Would provide a definite cure for all children who experience abuse We must consider short and long term effects of abuse Providing effective help, support and guidance. Strategy | Reason | Being respectful | Feel understood and considered and empathy | Child-centred approach | To Protect child’s innocence and childhood… promotes effective communication… you respect the childhood | Providing active support | The correct amount of support. To help them to move on to progress to develop. We do not restrict opportunities | Empowerment | Empowerment is choice and control. To give them control of their own life and responsibility. | Supporting assertiveness and self-esteem | Promotes confidence and feel valued. Promotes self-awareness and protection | Sharing information and not keeping secrets | Promoting openness and transparency. Good secret is ok. | Giving age appropriate information to the child | To consider severity to intimidate details sensitive | Preventing the transmission of disease | Consider sexual (sti). Physical infections (needles/untreated wound) | We consider: Severity of abuse Age Gender Timescale of abuse Perpetrators of abuse Strategies with families * Developing supportive partnerships , relationships with parent and families...
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...Elderly Abuse is any form of loss to an older person. It is generally divided into the following categories : Physical abuse is physical force that results in bodily injury , pain or impairment, restraint. Elderly abuse also called elderly mistreatment senior abuse. It is also a single or repeated act or lack of appropriate action, occurring with any relationship where there is an expection of trust which cause harm or distress to an older person. Thus, it includes harms by people the older person knows or whom they have a relationship, such as a spouse, partner or family member, a friend or neighbor, or people that the older person relies on services. Many forms of elderly abuse are recognized as type of domestic violence or family violence. Several key factors emerge when examining the population of elderly victims of domestic violence. Often abuse of the elderly is compared to child abuse. Victims in this age group are almost invisible in the movement to aid battering victims. How will I play a part in reducing the instance of elderly abuse in my community and work place , once I am a certified nursing assistant by making sure that the facility provides a safe environment. Unexplained bruising including restraints marks, and sudden firing a staff member who may be the indicator that something unusual is happening...
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...Bullying Bullying has become a big, big issue to our society. It has affected lots of lives and crushed dozens of souls. It is now this inevitable problem that most schools are trying to combat. They've established laws, they've set punishments, but the threat still remains. I know that fully eradicating bullying will be a very difficult thing, but there are ways to avoid its cases from worsening. First of, we need to address the fact that bullying only happens if there are “bullies”. They are the ones who start the abuse, weather physical or emotional. According to psychology, the reason they’re like that is because they too were abused or bullied in the past. It’s a never ending cycle. Those who are abused are the ones to abuse in the future. The solution to this problem is to address the problems of the bullies. They need more attention than the ones being bullied. I’m not saying that they’re not being prioritized. It’s just that we have to deal with what’s causing the problem. Next, we should help the bully victims regain what they lost. It may be self-respect, confidence, an old talent or material things such as clothes, accessories, etc. we could help build them up again. Their issues should also be dealt with, because if not then they’ll end up being bullies as well. Lastly, let it be a rule to always be nice. Because we are all fighting our own battles and your battle is just as hard as the next guy’s. We should also know how to respect each...
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