1.

Brown does not appear eager to write off many of the customer
accounts; instead, he prefers to establish an ample allowance to
provide for the possible bad debts. Is this a proper approach? Explain.
The completely write off the customer accounts would mean
expensing the account away which would significantly increase
expenses. This might draw unwanted attention to the expenses
for someone trying to do earnings management.
The better approach is to keep a large AFDA so the A/R would seems
smaller in the Financial Statement.
Auditor mentioned A/R increased by 40% this year, given there is
slow growth this year in the industry (hence increased A/R is not
due to increase in overall sales), increased A/R could indicate
company not as efficient in collecting payments from customers.
Large AFDA would offset the increase and mislead any user to
the F/S


2. Auditor indicates he may want to revisit the 10% allowance after he
receives more information from his staff. As an auditor, how would you
view Brown's move to set up a large allowance? Would you be more
likely to view this as an example of safe, conservative accounting, or do
you see any problems? Explain
Large allowance decreases the revenue
Given Brown is new to the company, he would want to prove himself
There is motive for him to go into earnings management by
decreasing revenue for this year so next year, the company can
appear stronger than before since Brown has joined
Not an example of safe, conservative accounting as Brown's motive is
not to accurately reflect company's financial health but to distort
financial health of company
I wonder what would Brown do next year? 10% AFDA is much more
than the usual 3% the company has used. Keeping 10% would
mean the revenue would always be 10% less so would not be
good for future. Unless if Brown wants to change it back to 3%
next year. Changing AFDA back to 3% would increase net
income. Using very different percentage allowance for doubtful
accounts distorts the picture of the company that Financial
Statements draw.

3. Regarding the presentation of realized investment gains and losses,
does GAAP address this issue, and is there any indication that more
firms are starting to reflect investment gain/losses in operations?
The auditor mentions that a few firms do this but this does not indicate
more firms are starting to reflect gain/losses in operations
need help with this one,

4. The auditor seems concermned about the reclassification of the
investment losses. Would Brown's reclassification 'distort the picture'?
Yes, the reclassification would 'distort the picture'
Since Zar had losses on investment this year and since the loss on
investment is not combined with the operating earnings, the
reclassifiation would change the picture.
The reclassification decreases the operating earnings this year makes
firm appear worse this year
Brown admits "[i]t will hurt us this year, but in most years we will have
investment gains, so it will normally help us." (p. 11) The sharp
decrease in one year then a great increase the next year are
qualities of a big bath which is earnings management. Earnings
management without a doubt distorts the picture of the financial
health of a company
Moving the losses into operating income would also mislead users of
the financial statement. The loss in operations could be attributed to
conditions outside of the company but companies choose their
investment so showing losses decrease confidence in shareholders of
the company.
Module 3
1. Penghapusan akun pelanggan dapat meningkatkan beban dan mugkin Ini
menarik perhatian yang tidak diinginkan dengan bagi seseorang mencoba untuk
melakukan manajemen laba.

Pendekatan yang lebih baik adalah untuk tetap menetapkan AFDA yang besar
sehingga A / R akan tampak lebih kecil dalam Laporan Keuangan.

Auditor menyebutkan A / R meningkat sebesar 40% tahun ini, mengingat ada
pertumbuhan yang lambat tahun ini di industri (dimana meningkatnya A / R
bukan karena peningkatan penjualan keseluruhan), meningkatnya A / R bisa
mengindikasikan perusahaan tidak efisien dalam mengumpulkan pembayaran
dari pelanggan. AFDA yang besar akan mengimbangi peningkatan A/R
peningkatan dan juga dapa menyesatkan pengguna atau pembaca F / S

2. Penjelasan :
AFDA yg besar menurunkan pendapatan
Ada motif baginya untuk masuk ke manajemen laba dengan mengurangi
pendapatan untuk tahun ini sehingga tahun depan, perusahaan dapat muncul
lebih kuat daripada sebelumnya karena Brown telah bergabung
menurut kami bukan contoh yang aman karena motif brown menggunakan
akuntansi konservatif tidak secara akurat mencerminkan kesehatan keuangan
perusahaan, tetapi untuk mendistorsi kesehatan keuangan perusahaan
AFDA sebesar 10% jauh lebih besar dari biasa perusahaan tertapkan yaitu 3%.
Kalau ditetapkan 10% berarti pendapatan akan menjadi berkurang 10% hal ini
tidak akan baik untuk masa depan. Bila AFDA ditetapkan 3% maka akan
meningkatkan laba bersih. Penetapan presentase AFDA yang perbedaannya
sangat signikan untuk piutang tak tertagih, dapat mendistorsi Laporan Keuangan
perusahaan.