Chairman Levitt

1. Briefly describe Chairman Levitt’s concerns and the reasoning behind them. What is the

evidence that Levitt brings in support of his concerns?

2. Chairman Levitt discusses in his speech five popular accounting “illusions” designed to

manage earnings:

a. “Big bath” restructuring charges

b. “Creative” acquisition accounting

c. “Cookie jar reserves”

d. “Immaterial” misapplications of accounting principles

e. Premature recognition of revenue

‐ Using the accounting equation, briefly describe how each of those “illusions” was being

used to manipulate earnings.

Last Updated on February 11, 2019

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