Tone at the Top Trickles Down: A Case of Non-GAAP and GAAP Earnings Management

• In Event: Resources for Accounting Faculty

Abstract

Abstract: The increased reporting of non-GAAP measures and earnings by publicly-traded companies makes the topic relevant to accounting majors. This case brings to light an actual discussion of SCIAT, Inc. with “the analysts” regarding a recent press release. In particular, a discussion about a non-GAAP item that subsequently became the target (among other items) of an SEC fraud investigation. The information of the case is based on a real-life company. The case puts the reader in the mind of the CEO, Gabby Trickle, beginning with the conference call with the analysts and reflections on events leading up to the conference call. Completion of the case requirements provides students the opportunity to (1) discuss Regulation G’s non-GAAP reporting, (2) reconcile non-GAAP and GAAP financial information, (3) prepare correcting journal entries, (4) prepare corrected quarterly earnings and (5) analyze the impact of the misstatements on the financial statements. From a fraud perspective, students are also able to (1) discuss the fraud triangle, (2) identify red-flags (fraud symptoms), (3) discuss financial statement fraud, and (4) discuss the control environment as it applies to SCIAT.

Author

• Leisa L Marshall, Southeast Missouri State University