In next section, we explain what a logic of accounting manipulation is and why managers tend to utilize M&A deals to control companies’ performance.ģ. This case raise a doubt about the management decision and the accounting process of HP. It is seemed that HP treated goodwill in the appropriate way. HP recorded $8.8 billion of the impairment loss of goodwill after the detection of Autonomy’s fraud. The second case is the unintentional error caused by Hewlett-Packard (hereafter HP). This case suggest shows the transition from its earnings management to the accounting fraud and the relationship between them. We mainly investigate the role of goodwill accounting under the scheme. At first, we survey the summary of the scandal and the scheme which Olympus took the advantage of. The first case is the scandal of Olympus Corporation (hereafter Olympus) which is one of the most famous accounting fraud. Methodologies - Case Studies This study used two case studies to explore the accounting manipulation through M&A 2 Those decisions can have a huge impact on their financial statements.Ģ. Under the accounting standards, managers can make discretional decisions. As mentioned above, managers are likely to manipulate accounting figures through accounting procedures for M&A. Accounting for acquired goodwill has been subject to considerable debate for at least the past 50 years (Ramanna and Watts (2012)). Our study hypothesized there was some link between earnings management and accounting fraud. (2011) showed that fraud companies were more active in earnings managements than non-fraud companies in previous fiscal years. The accounting area calls legal manipulation “earnings management” and illegal manipulation “accounting fraud” or “window dressing”. In addition, a manager could shift a legal manipulation to an illegal manipulation. Even if we identify manager’s manipulation as legal bounds, some manipulation might be illegal. Until the scandals are revealed, we cannot identify whether managers did the window dressing in their financial statements or not. These scandals are called “Window Dressing”.
These types of scandals are usually revealed by bankruptcy, anonymous reporting, supervisor monitoring, and etc. Olympus had hidden more than $1.5 billion of investment losses through M&A transactions until the scandal exposure in 2011.
For example, the Olympus scandal in 2011 is a typical and the latest illegal case for M&A. There are many manipulation cases by handling M&A deals. M&A is one of the biggest deals in management decision.
If value for an economic transaction is bigger, manipulatable value is also larger. Managers tend to manipulate accounting figures through an economic transactions. Introduction Many previous studies have already suggested that managers have an incentive to manipulate a financial result meeting their earnings targets. *Shizuoka Bank, ** Graduate School of Management and Information of Innovation, University of Shizuoka, *** University of Shizuokaġ. Key words: goodwill, accounting fraud, earnings management This would lead to a high possibility that many companies poorly comply with the requirements of accounting. Managers have a broad discretion into the accounting for goodwill. The boundary between earnings management and accounting fraud is unclear. This behavior include earnings managements. This ESMA showed that managers tended to intentionally avoid impairments losses. The European Securities and Markets Authority (ESMA) reported that overall impairment losses on goodwill amounted to only €40 billion from the €790 billion of goodwill in spite of the EU sovereign debt crisis in 2011. The Olympus scandal in 2011 is a typical accounting fraud through M&A transactions. These are decision of purchase price, measurement of goodwill and impairment of goodwill. Our study found that the accounting gives managers three opportunities to manipulate accounting figures. Accounting for acquired goodwill has been subject to considerable debate for at least the past 50 years (Ramanna and Watts (2012)), because the accounting tends to provide managers with discretion to manipulate accounting figures. This study attempts to find the linkage between them by exploring some cases. Most previous studies ignored the connections between earnings management and accounting fraud. Accounting for Goodwill and Manipulation Genki SAKAKIBARA*, Sanshiro UCHINO**, Takefumi UENO***Ībstract We explored some links between earnings management and accounting fraud.
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