The earnings management technique that is being used when a company records an overly large liability for a potential lawsuit against it, during a year when profits are good, and later corrects this liability in a year with low profits, is
A) Taking a big bath
B) Real earnings management
C) Abusing materiality
D) Using a cookie jar reserve

Question

Quizplus · Accepted Answer

This technique is known as using a cookie jar reserve. It involves setting aside reserves from good years to smooth earnings in bad years, by overestimating liabilities in good years and then reversing these estimates in bad years to boost earnings.

The Earnings Management Technique That Is Being Used When a Company