Financial Shenanigans, Fourth Edition: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 4th Edition

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Earnings Manipulation Shenanigan No. 6: Shifting Current Income to a Later Period

Here’s a quiz. Why would management at a publicly traded company ever mislead its investors by reporting smaller profits? You may be thinking that the goal would be to cut taxes. That would be the correct answer for private companies, which care more about shortchanging the tax collector. Publicly traded companies, however, certainly care about reducing taxes, but they often direct more attention toward impressing investors with smooth and predictable earnings growth.

As you may recall from Chapter 3, “Earnings Manipulation Shenanigan No. 1: Recording Revenue Too Soon,” management used the techniques in that chapter because it believed that current-period results ...