Which of the following earnings management techniques is frequently associated with start-up companies?
A) Recording immaterial adjustments that cause earnings to meet analysts' expectations.
B) Recording extremely high warranty expense when earnings are high.
C) Recognizing revenue when a contract is signed and before goods are delivered or services are provided.
D) Expensing purchased in-process research and development.

Question

Quizplus · Accepted Answer

Recognizing revenue when a contract is signed and before goods are delivered or services are provided is known as premature revenue recognition and is a common earnings management technique used by start-up companies to boost their earnings. This practice is especially prevalent in companies that have long-term contracts with customers. The other techniques listed may be used by companies in general, but not necessarily specific to start-up companies.

Which of the Following Earnings Management Techniques Is Frequently Associated