Question

Discuss the issues the SEC raised against Mark Frissora and his former employer Hertz Global Holdings Inc. in 2013 and how it related or contrasted with the three topics in your text for Chapter 5 regarding Earnings Quality, Earnings Management, and Fraudulent Financial Reporting.

Answer 1

Issues that SEC raised againt Mark Frissora and Hertz Global holdings Inc. in relation to the topics

1. Earnings quality
2. Earnings management
3. Fraudulent Financial reporting

Case Summary and solutions.

The Hertz Corporation violated certain bookss and records provisions and reporting by overstatating its pretax income and it alo failed to disclose certain business practice changes with a material financial impact.Frissora aided Hertz in commiting this violations.It consequently led to resultant quarterly gap in budget forecast and actual financial results.Frissora pressured subordinates in closing such gaps asked to find money for the company reanalysis of its reserves.Hence various personnel of Hertz used inappropriate accounting methedologies and practices..The frauds done by Hertz may include

• Failure to adequately disclose it extension of planned holding peeriod.
• Restatement and prior financial revisions
• Improper accounting
• inappropriate earnings guidance

Financial pressure on Hertz pressed staffs to use improper accounting practises ,here this is the instance of fraudulent financial reporting which means the intentional mistatement of amounts or disclosures from financial reports to decieve financial statement users.

Frissora led Hertz to extend the planned holding periods.Because the planned holding period factored into Hertz's calculation of its car rental asset which is the deliberate violation of disclosure and reporting .

Now,taking the topic of earnings quality and management ,Hertz had revised its earnings guidance downwards ,which would results in the earnings of Hertz to fall below that range.Frissora approved Hertz's reaffirmance of this earnings forecast range and actual earnings ended up below the reaffirmed range.

Earnings per share are an important measure of a company's profitability from the investors perspective which created a gap between projected and actual financial results in Hertz.

To meet the budget and earning estimates Frissora pressed for savings in the reserve accounts to find money and Hertz's forecasted earnings.Hertz's staff made accounting changes in the books that did not accord to the GAAP.

Hertz inaccurate earning guidelines is another instance of fraud.

Earnings management become fraud when companies intentionally provide materially mistated information .Earnings management includes selecting GAAP methods with concern for appearance rather reality.It may include techniques like changing reported earnings through performance timing.Earnings managent has negative affect in quality of earnings if it twist the information in a way that makes it of no use or less useful.

The earnings management can be prevented only through proper audit and stengthening the system of corporate governance.