Business Finance
MBA520 Southern New Hampshire Accounting Quality Paper


Southern New Hampshire University

Question Description

Help me study for my Accounting class. I’m stuck and don’t understand.

In the last 10 years, there have been a number of high-profile incidents in which companies have adversely impacted investors and their own profitability because of measurement error or measurement bias in financial statements and reports. For this discussion, research such an incident within the last five years using credible news and financial publications (e.g., Bloomberg, The Financial Times, The Wall Street Journal, The Economist).

After you choose and research your incident, answer the following questions:

  • Was the incident you chose an instance of measurement error or measurement bias? What action did the company take that resulted in error or bias?
  • What were the consequences of the action?
  • What steps, if any, did the company take to rectify the situation?
  • What steps might the company have taken to improve accounting quality?

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Final Answer

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Accounting Quality


Accounting Quality

Cases of creative accounting cause many financial losses. Investors are led to
believing false accounting. Managers are keen on meeting the set of financial targets.
Achieving such levels of profits enables them to get more bonuses. The pressure to perform
has led to the managers resorting to creative accounting. Some of the methods include
inventory write-downs, underreporting costs, and over-reporting revenues. This move enables
them to meet the set profits and revenue targets.
On the other hand, investors and other stakeholders rely on financial statements to
make decisions. Financial institutions extend credit facilities to the company based on various
economic data. Investors would also purchase the company shares based on the balance sheet
and the income statement.
Measurement error
Enron scandal demonstrates measurement error. The management team intentionally
reported fictitious results. There was collusion between the company managers and the
auditors who gave unqualified opinions. The figures in the income statement were
manipulated to show increased profits. On the other hand, the balance sheet showed a higher
value of assets, while the liabilities were under-reported. It was hard to establish the real
worth of the company at any point in time.
Actions resulting in the errors
Enron manip...

CASIMIR (26304)
Boston College

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