Accounting- In the eyes of the SEC, “cookie jar reserves”

| January 30, 2017

Question
In the eyes of the SEC, “cookie jar reserves” are estimated liabilities that are too high and unrealistic. Then these unrealistic accruals can be dipped into during the bad times; put a cookie away in the good times and take one out in the bad. This is a way to manage, or smooth earning. On the surface, earnings management via overaccruals sounds bad. However, is earning management such a bad phenomenon for investors?

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