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Universiti Utara Malaysia Othman Yeop Abdullah Graduate School of Business (Oyagsb) A201 2020/2021

1. Emerson Electric has applied an earnings strategy over the years to maintain its record of earnings growth through earnings management techniques like increasing reported income in the current period to portray a more favorable view of the company. 2. Emerson's strong earnings record reflects both excellent management as well as some earnings management activities to smooth earnings over time. 3. Emerson applies its earnings strategy differently in good versus bad years - likely building hidden reserves in good years to draw upon in bad years to maintain consistent earnings growth. Years 16-17 were likely used to build reserves while years 21 drew upon reserves.

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311 views2 pages

Universiti Utara Malaysia Othman Yeop Abdullah Graduate School of Business (Oyagsb) A201 2020/2021

1. Emerson Electric has applied an earnings strategy over the years to maintain its record of earnings growth through earnings management techniques like increasing reported income in the current period to portray a more favorable view of the company. 2. Emerson's strong earnings record reflects both excellent management as well as some earnings management activities to smooth earnings over time. 3. Emerson applies its earnings strategy differently in good versus bad years - likely building hidden reserves in good years to draw upon in bad years to maintain consistent earnings growth. Years 16-17 were likely used to build reserves while years 21 drew upon reserves.

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fitri
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UNIVERSITI UTARA MALAYSIA

OTHMAN YEOP ABDULLAH GRADUATE

SCHOOL OF BUSINESS (OYAGSB)

A201 2020/2021

Financial Report Statement Analysis


(BWFF 5033)

Case 2-14
Emerson Electric

Written by:
Muhamad Fitri Bin Shahiran (826315)

Lecture Name:
Dr. Syed Mohd Na’im Bin Syed Salim
1. Problem 2-14
Emerson Electric
a. What earnings strategy do you think Emerson has applied over the years to maintain
its record of earnings growth?

The earning strategy can applied by Emerson Electric to maintains its record of
earning growth is managers increase current period income, one earning
management strategy is to increase a period’s reported income to portray a
company more favourably. It is possible to increase income in this manner
over several periods.

b. Describe the extent you believe Emerson’s earnings record reflects business
activities, excellent management, and/or earnings management.

Emerson’s need to report their financial statement in relevance because all


information to affect a decision and is the first and two primary qualities of
accounting information. This implies that timeliness is a desirable
characteristic of accounting information. Emerson has excellent management
and earning management that show in financial statement net income
increasing from year to years and this will reflects to business activities.

c. Describe how Emerson’s earnings strategy is applied in good years and bad.

The advantages Emerson’s applied the strategy is that will reflects the current
information, consistent measurement criteria, comparability, no conservative
bias and more useful for equity analysis. For disadvantage for this strategy
lower objectivity, susceptibility to manipulation use of level three inputs, lack
of conservatism and excessive income volatility.

d. Identify years where Emerson likely built hidden reserves and the years it probably
drew upon hidden reserves.

Years Emerson built hidden reserves years 16 and years 17 and the company will
drew the hidden reserves in years 21 and awards to increase the production and
profit.

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