ABSTRACT

One of the most blatant and public examples of earnings manipulationis the 1996 bonuses paid to Apple executives. After three consecutivelosing quarters, Apple showed a third-quarter 1996 profit of $25 million. The following excerpt is from CNNfn from February 5, 1997:

The announcement to curtail executive bonuses was explained by Wall Street as an attempt to head off a potential shareholder suit over the outrageous manipulation of earnings to justify a last-minute modified “executive bonus plan”. The inventory adjustment that allowed Apple to report a “profit” was in accordance with generally accepted accounting principles (GAAP). In fact, the opportunity existed due to one of the basic rules of accounting product costing, although I am certain Apple Executive’s intention did not match that of the GAAP in regard to fair and consistent reporting.