Managing/Manipulating the Numbers

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Managing/Manipulating the Numbers
Background
Relying on aggressive accounting assumptions has been one of the approaches through which, companies make there financial information to appear less volatile. There are various earnings management techniques employed by companies to match earnings with losses, and this is meant to enhance the reported numbers. Even though, manipulating numbers might not necessarily be fraud it is unethical and potentially misleading to users of financial information. In the case of Tyco international, the management relied on practises that did not appear suspect at first, but they were in a position to manipulate the accounting practices.
What the company did
Tyco International manipulated there numbers at the turn of the 21st century in order to give a more positive outlook about the company. Even though, some of the accounting tricks used did not necessarily result to fraud, the need to restate some of the accounts showed that, the financial information was prepared in a way to manipulate users of the company’s financial records. Since the company has been involved in carious mergers and acquisitions over time, some of the expenses attributed to the restructuring were not properly reflected in the company’s records over time. This included the recognition and amortization of goodwill amount. Even though, the manipulation of numbers did not adversely affect the company’s operations since was no threat of bankruptcy, there was a significant fall in the share price
One of the accounting tricks was the use of reserves in cases where there were unrelated expenses, while also misrepresenting some expenses as long-term costs (Maremont & Cohen). In setting up a form of ‘cookie jar reserves’ Tyco International increased there earnings while reducing liabilities. This enabled the company to rely on strong earnings from previous periods to meet investor expectations. Another problem related to the financial accounting records of the company is that the earnings did not truly represent the prevailing situation, especially after mergers and restructuring. At the same time, reliance on pooling of interest in the case of mergers and acquisitions meant that due procedure was not followed.Reasons for numbers manipulation
The fraud also involved the management taking plans which were never repaid or approved by the board. The manipulation was intended to mislead the investors that the company was meeting there expectations. The company is a major player in electrical and electronics components, security service...