ACC 696 Week 8 Discussion Post 5

For this discussion I wanted to bring up the company that I’ve been researching and writing

on for a while, Granite Construction, from California. More specifically, a subdivision of the

company, Heavy Civil Group which was headed by the company’s senior vice president Dale

Swanberg. Starting in 2017, Swanberg was under pressure from the board of Granite to turn

around Heavy Civil’s lagging financial performance, and his solution to that was manipulate

Heavy’s profit margins and improperly defer the recording of expected costs so that he could

hide the group’s deteriorating performance margins. He improperly deferred the increased

costs of labour and materials on projects including highways, bridges, and mass transit

centres that Heavy Civil was working on to make it seem that they were bringing in more

From everything that the press release had to say about how Swanberg was manipulating

Heavy’s profit margins there was clearly delays in recording vendor invoices so that he could

continue to defer the increased costs of operating and construction / materials. There might

also have been some use of “scrap” cost burying where he may have lumped certain expenses

together, and he might also have been continuously asking for deferred billing from the

company’s suppliers.

Carillion was a British multinational construction company that was engaged in a

construction project in Qatar. The company experienced problems regarding the collectability

of nearly £200m in unpaid invoices and payments related to the project. Despite problems

regarding the contract in 2014 and 2015, revenue was recognized on the 2017 financial

statements, without a provision to account for the unlikely collectability of the revenue.

Additionally, the company suffered a pension deficit that led its demise.

Cookie Jar Reserves – are savings from previous quarters that a company records as earnings

in subsequent quarters to make it appear that its earning was higher than they really were.

There was a study undertaken to focus on financial statement fraud by The Block holders,

what was found was within 6 different cases shareholders received private benefits at the

expense of minority shareholders. Companies with fraudulent firms controlled by block

holders end up going bankrupt over companies who are not controlled, this could show that

the cookie jar strategy was used in this case. The only plausible explanation of why certain

shareholders received more than the earned amount is if earning for a certain period where

higher than expected.

I have researched the Kraft Heinz Company for this discussion. Management of KHC

impact if KHC did not meet the aggressive earnings projections. This is a good example of

external expectations having influence on the way KHC managed its earnings.

financial reporting to obtain some private gain. Earning management involves the alteration

of financial reports to mislead stakeholders about the organization’s underlying performance,

or to “influence contractual outcomes that depend on reported accounting numbers.”

d d d d d d d d d d The most popular and successful techniques used to manage earnings can be

categorized into 11 groups: cookie jar, big bath, a big bet on the future, flushing of an

investment portfolio, throw out the problem child, change in GAAP amortization,

depreciation and depletion, sale/leaseback, and asset exchange, operating vs. non

operating income, early retirement of corporate debt, and stock buybacks.

d d d d d d d d d d The New York Attorney General Letitia James filed a lawsuit against Donald

intentionally created more than 200 false and misleading valuations of assets on his

annual statements of financial condition to defraud financial organizations.

d d d d d d d d d d The earning management technique could be associated with real-activity

earnings management using operating decisions. This type of earning management is

when managers make decisions that affect the real operations of the firm. The

Trump Organization made decisions that affected the whole company to get

economic benefits. This affected the Trump Organization because they got benefits

that should have been designed for other organizations. These other organizations might have

needed them more than the Trump Organization.

Four senior executives of Surgalign manipulated the medial implant manufacturer’s revenue

during the 6-year period ending in 2019. They hid disappointing sales numbers by pulling in

misrepresentation of revenue recognition. d The company assured investors that it was meeting

This case marked an achievement by the SEC in its “EPS Initiative” in which the

agency uses analytics to uncover difficult to detect accounting and disclosure violations by

public companies.

d d d d d d d d Four of the company’s executives also agreed to pay back approximately $600,000 in

incentive-based compensation paid out during these years of revenue manipulation.

Mintz, Steven M. & Morris, Roselyn. (2020). Ethical Obligations and Decision Making in

Accounting (5th Edition). McGraw-Hill Education US. https://prod.reader-

ui.prod.mheducation.com/epub/sn_7567e/data-uuid-165aaab94b94470e809d751a40bbf1e3

Wikipedia Contributors. (2018, February 17). Earnings management. Wikipedia; Wikimedia

Foundation. https://en.wikipedia.org/wiki/Earnings_management

Earnings Management Practices and Techniques. (2020, June 11). MBA Knowledge Base.

https://www.mbaknol.com/financial-management/earnings-management-practices-and-

techniques/

Attorney General James Sues Donald Trump for Years of Financial Fraud. (n.d.). Ag.ny.gov.

Retrieved October 16, 2022, from https://ag.ny.gov/press-release/2022/attorney-general-

james-sues-donald-trump-years-financial-fraud

Bergen, R. M., Solomon, M. C., Vicens, L., Lightbourne, J., & Rosenblum, B. (2021,

September 8). Two recent settlements highlight heightened SEC focus on accounting fraud

2022, from https://www.clearyenforcementwatch.com/2021/09/two-recent-settlements-

highlight-heightened-sec-focus-on-accounting-fraud-and-potential-benefits-of-cooperation/

0113/full/pdf?title=the-dark-side-of-blockholder-control-evidence-from-financial-statement-

fraud-cases

Shoaib, A. (2020, February 27). Carillion inquiry: Missed red flags, aggressive accounting

and the pension deficit. Accountancy Age. Retrieved October 10, 2022, from

https://www.accountancyage.com/2018/02/26/carillion-inquiry-missed-red-lights-aggressive-

accounting-pension-deficit/

Mintz, S., & Morris, R. (2020). Chapter 7: Earnings Management. In Ethical obligations and

decision-making in accounting text and cases. essay, McGraw Hill Education.

SEC Charges Infrastructure Company Granite Construction and Former Executive with

Financial Reporting Fraud. SEC Emblem. (2022, August 25). Retrieved October 11, 2022,

Staff, T. B. J. (2022, August 26). SEC charges Granite Construction, ex VP with reporting

fraud. The Business Journal. Retrieved October 12, 2022, from

https://thebusinessjournal.com/sec-charges-granite-construction-ex-vp-with-reporting-fraud/