Page 36 - FINAL CFA I SLIDES JUNE 2019 DAY 9

LOS 32.h: Describe accounting methods Session Unit 9:

(choices and estimates) that could be used to 32. Financial Reporting Quality, p.305
manage earnings, cash flow, and balance sheet
items., p 311

• Revenue recognition: FOB –shipping point versus FOB destination; Channel stuffing (delay shipments to
shift revenue to next period and crowd distribution channel); Bill –and –hold transaction
(revenue recognised for good still in inventory –other firm impact?);

• Estimation of credit losses (adjust bad debt reserves to smooth earnings);

• Valuation allowance –increasing this will decrease net DTA on the balance sheet and reduce earnings;
tanties
• Depreciation Methods and Estimates –e.g. using accelerated instead of straight line or vice versa!

• Amortisation and Impairment –By ignoring or delaying recognition of impairment charge for goodwill!

• Inventory Method –Choice of FIFO versus LIFIO will produce different earnings!

• Related-Party Transactions –Adjusting prices of good supplied by related parties/supplies can shift earnings

• Capitalisation –An expense that is capitalised will increase earnings this year but reduce it in future!

• Other cash flow effects –stretching payables (delay paying suppliers); capitalising interest expense will

decrease CFI and increase CFO and affects pattern of earnings via depreciation effect on the assets over time;
IFRS flexibility to classify interest and dividend paid as either CFO or CFF, gives management an additional way to
manage reported operating cash flow.