Hello. I'm Professor Brian Bushee. Welcome to week two of my part of the accounting analytics course. This week is going to represent a change in mindset over what we did last week. So last week we did ratios and forecasting to try to understand what happened at a company during a year. All along we were assuming that the financial statements were a unbiased, accurate representation of the company's performance and financial position. This week, we're going to change that assumption because unfortunately, there are a lot of companies, probably more than you would suspect, that try to intentionally bias their financial statements. In other words, they make accounting choices or structured transactions in a way to try to make their financial statements look better than they really should look. I'm going to call this phenomenon of trying to bias the financial statements look better, earnings management. And what we're going to do this week are look at some tools and techniques to try to spot this earnings management. If we spot it, we don't want to just jump in to the ratio analysis that we did last week, instead we want to try to undo some of the bias that managers introduced. So we'll also talk about ways where if we see financial statements where we think there has been earnings management, how can we try to undo that earnings management to get a more accurate picture of the company's performance during the past period. In the first video, we'll do an overview of earnings management. We'll talk about means, motive and opportunity. So, motive, what are the manager's incentives to manipulate their earnings or manipulate their financial statements. Means, how do they actually do it? How do they actually make their earnings look better? And opportunity, how do they get away with it? Then we'll move into two videos looking at revenue recognition red flags. So, one of the most common ways managers try to manipulate their earnings is by increasing their revenue. We'll first talk about revenue recognition before cash is collected. We'll talk about something called channel stuffing, where managers try to boost their revenue right at the end of the period, but none of it involves cash. Then we'll talk about revenue recognition after the sale, where we'll see something called a cookie jar, unearned revenue account, where companies can use this cookie jar account to smooth out their revenue when their cash collections are volatile. Then we'll move to two videos on expense recognition, because another way to manipulate your earnings is to manage your expenses. First, we'll talk about capitalization versus expensing. This is a way that growth companies, especially young growth companies, can try to make their earnings look better, by taking a lot of their cash costs, and instead of having a big expense for them immediately, spread them out over time through capitalization. And finally, we'll talk about reserve accounts and delaying write-offs. Reserve accounts, like allowance for doubtful accounts and warranty liability require assumptions. So, managers can change those assumptions to make their earnings look better. And write-offs. Sometimes managers should be writing off their inventory or property plant equipment, but by delaying those write-offs they can make their earnings look better during the period. So it's going to be a small number of videos this week but the videos are going to be fairly long, 15 to 20 minutes, because I want to try to introduce the tools. And do the cases within the same video. So make sure you block out plenty of time to watch the videos, make sure you have enough to eat and drink. Download all the spreadsheets and extra material on the course platform and let's get out there and try to catch some bad guys in financial reporting this week.