Question

In your initial post, please discuss (using examples as appropriate) if you feel it is easier to manipulate short-term or long-term accruals.

Answer 1

Short-term and long-term discretionary accrual has different characteristics. The difference lies in the issue of return period and the accounting method used. Short-term discretionary accrual has a relatively short period of time (generally only one year). While the long term discretionary accrual has a relatively long period of time or long (over a year). Other causes are: the existence of differences in the selection of the accounting method is performed, the recording of inventory, accounts receivable, business assets, accounts payable and taxes payable, intangible assets, revenue and net income.

Characteristics of the short-term and long-term discretionary accruals approach is different. Short term accrual is accrued which affected working capital accounts and describe changes in current assets and liabilities. While the long term describing the depreciation accounts, future tax benefits, employees rights, revaluation of assets, and reasonable value adjustments of financial instruments.

Management can take advantage of these differences with accrual components characteristics reverses. The market expects short term accrual for return relative quickly, so resticted chance to be manipulated earning by management. It can take up to three years of accrual above for return. However, the expected behavior of long term accrual is providing more opportunities for opportunistic behavior as long term accrual manipulation that could remain undetected during the accounting period.

The use of short term discretionary accrual models tends to reduce profit numbers which affect the components of current assets. Long term f discretionary accrual models tend to do practice of earnings management to raise profits by affecting components of fixed assets.

Therefor, Short-term accruals are easier to manipulate. To ma-nipulate long-term accruals, you would have to manipulate eg. depreciation schedule, and though this may be possible a few times,if it is done often, it will most surely raise eyebrows.