In the present context, the Wells Fargo company has been selected,
which is a highly prestigious bank in the United States. Wells Fargo is
currently providing a wide range of financial services to its potential
customers in the US. In September 2016, the report of the Wells
Fargo scandal was out revealed that the employees had faked nearly
3.5 million customer accounts to achieve the bank's sales goals
(Welch, 2022). However, the company has admitted its mistake of
falsifying the information of the customers by opening unauthorized
customer accounts. It has been identified that the reputed bank's
agents are even involved in forging the customer's signature and
manipulating and transferring assets between the accounts. These
activities were conducted without the knowledge and consent of the
customers (Cruz, 2018). The main reason behind the selection of this
Wells Fargo Scandal is that it has been a popular example of ethical
violation, unethical sales practices or sales integrity violation in the
US. As the question has aimed to analyze the Wells Fargo case and
apply one of the earnings management techniques, the description is
given below.
The earnings management techniques
The earnings management techniques and strategies executed by
many big companies to achieve their financial goal. This technique
has the potential to paint a better picture for stakeholders and
intentionally influence financial reporting. This earning management
techniques have five common factors that include the Big Bath,
Operating Activities, Cookie Jar Reserves, Revenue Recognition and
Materiality methods (Strakova, 2021).
The application of earnings management technique in the case of
Wells Fargo
The big bath is one of the earnings management techniques that has
been applied to the Wells Fargo case. In general, when a company is
experiencing a bad period because of external factors, it can directly
affect its organization's profit. At this time, the company makes it
even worse by restructuring costs, writing off all bad debts,
overvaluation of assets depreciation, and other expenses to evade tax
and show more loss (Swaminathan, 2022). In the context of Wells
Fargo, the company was running in a bad situation, but it committed a
mistake by falsifying the information of the customers and opening
unauthorized customer accounts. During the critical situation, the
company has decided to reconstruct and made all investors and
creditors, customers and suppliers, management and employees
understand the expected effects. The application of the big bath
technique in the business setting has affected their brand image and
the customers' trust level.
References
Cruz, B. (2018). Wells Fargo: An article based analysis.
10.13140/RG.2.2.18452.65924.
Strakova, L. (2021). Motives and techniques of earnings management
used in a global environment. In SHS Web of Conferences (Vol. 92, p.
02060). EDP Sciences.
Swaminathan, A. (2022, June 08). Earnings management. Retrieved
October 11, 2022, from https://www.wallstreetmojo.com/earnings-
management/
Welch, J. (2022). Wells Fargo: a corporate recovery model to bank on.
Journal of Business Strategy, (ahead-of-print).
