MAA716 Financial Accounting Internal Assessment – Individual Assignment (100 marks - 40%) Referencing Any material used in this assignment must be acknowledged and appropriately referenced. Plagiarism by any student is a serious matter and, if it occurs, it will be dealt with on a case-by-case basis with penalties imposed. The reference list (using APA Referencing System, refer to Deakin University website for more details) is not included in the total word count and this gives flexibility as to the extent of the research that is necessary to form opinions. Please make sure that you adhere to the total word limit - 2,000 words (excluding references list). Each page of the report should be numbered and must show the total number of pages (e.g. Page 1 of 8), and every page must have a header that identifies full name and I.D. of every contributing student, and the unit code MAA716. Research Question: Revenue Recognition and Earnings Management (40% of assignment) Revenue is probably one of the most important elements in the financial report that is used in assessing an entity's financial performance. Researches have shown that improper revenue recognition is the single largest contributing factor to financial restatements. It is also the most frequent reason of financial misreporting and restatement caused by earnings manipulation has the greatest impact to the capital market. Managers always use premature revenue recognition practices to meet or beat Wall Street expectations, and manipulation of revenue recognition is always used to mask the true consequences of management's decisions. Earnings management is defined by the U.S. Securities and Exchange Commission (SEC) as an inappropriate practice of distorting the true financial performance of the company. Accounting scandals over the past two decades, such as the collapses of Enron and WorldCom in 2002, had resulted into more than $250 billion losses for investors and thousands of employees lost their jobs. Following the scandals, the U.S. Congress passed the Sarbanes-Oxley Act (SOX), introducing the most sweeping set of business regulations since the 1930s. Using no more than 2,000 words (including introduction and conclusion, but excluding references), you are required to write an essay to answer the following questions. Support your answer by citing creditable references such as newspapers and articles from practitioner (professional) journals and scholarly journal articles. Questions: i. Apart from meeting analysts' expectations, what are other incentives for managers to manipulate earnings? Provide at least three incentives and explain in detail. (suggested words: 400- 500) ii. Two common types of earnings manipulation strategies are real activities manipulation and accrual-based earnings management. How do managers execute these two strategies? Provide examples. (suggested words: 500 - 700) iii. How do they differ from each other and how managers make the trade-off decisions between real activities manipulation and accrual-based earnings management? (suggested words: 300 - 400) iv. Provide a valid interpretation of the following statement and explain whether you agree or disagree with it: (suggested words: 300 - 400) "Earnings management is rife. Manipulation occurs virtually for nearly every firm in every quarter and routinely occurs in enormous amounts."