Earnings management (“EM”) is the practice of earnings smoothing. Research shows there are three reasons why managers engage in EM. They include: optimal contract design, signaling and rational expectations. One example of an optimal contract design is when management’s compensation is tied to the earnings of the firm. Risk-averse managers will engage in EM to …
It was after the lunch hour and I was testifying as a CPA expert on an economic damages case. The venue was a superior courthouse in Santa Ana, California. The day was a hot one and I was testifying at a jury trial. I had been retained by the plaintiff. My testimony was laced with …
Max was an experienced tax accountant. He had a small CPA firm whose members included him, a receptionist and two staff accountants. Max decided that he wanted to branch out into litigation support services. Before he did, he took courses on how to value a business and eventually got his Accredited in Business Valuation (ABV) …
I recently read an article about fraud within the Massachusetts State Police (MSP). The author, a former MSP trooper, outlined an investigation by the U.S. Department of Justice (DOJ) and the Massachusetts Attorney General’s Office. The investigation involves a minimum of 46 troopers with the allegations including payroll fraud and conspiracy, among other federal violations. …
In a previous blog, I discussed the term “forensic accounting” and ultimately provided a very general definition: Forensic accounting is the application of specialized accounting, finance, economics and related knowledge and skills in a legal setting. After publishing that blog, I realized that I may have given short shrift to the term forensic economics. Upon …
Crime is big business both domestically and across the globe and, as a result, money laundering activities are extensive. In fact, the United Nations Office of Drugs and Crime reports that “[t]he estimated amount of money laundered globally in one year is 2% – 5% of global GDP, or $800 – $2 trillion in current …
When valuing a business using an income approach, a valuation analyst will develop a discount rate or capitalization rate to apply to the expected ongoing income or cash flows of the Company. The discount or capitalization rate (cost of capital) is essentially a rate of return expected by the potential buyer for the investment in …
If you have experience testifying in court and you felt no stress of any sort, you must be a robot. Not me. As a CPA, I’ve testified over 150 times in state courts in Arizona, New Mexico, Nevada and California as well as federal courts in Arizona and Texas. Before I became an accountant, I …
I recently received a call from a lady identifying herself as an agent of the Internal Revenue Service. She said I owed a large sum of money to the IRS in back taxes and that if I did not pay up, I would find myself being prosecuted to the fullest extent of the law and …
Several years ago, I wrote about the Fraud Triangle. A recent case I read about shows once again how relevant it is. In 1973, Donald Cressey published the results of his research on embezzlement in Other People’s Money: A Study in the Social Psychology of Embezzlement. Mr. Cressey’s hypothesis has become known to many as …
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