All Materials | Accounting | Carat task


You are required to write a Letter of Advice to the Board, together with a transmittal email
to Nicole outlining
1) The financial impact that declaring the rebate before or after 30 June will have
(calculations are required)
2) Whether or not this represents earnings management, and if it is good or bad
earnings management? (academic references required)
3) Your recommendation as to which year the rebate should be committed to pre or post
30 June. (Hint: you may want to consider the AAA model discussed in the lecture)
(The Letter of advice should be limited to 4 pages plus references)



I am writing to provide expert advice on the best course of action for the commitment of the Carart rebates. Power gives utmost control to the managers, and it is natural to foresee that managers will use their power to maximize the market value of their firms alongside their utility. Exercising their endowed power, managers portray the flexibility to consider among the multiple accounting and transaction recording means for its revenues and expenses (Cameron 1982, p.73). However, it should come to your attention that prudential accounting standards are ought to be upheld in exercising this power failure to which the company may face drastic financial. The selecting options exist in the accounting same treatment principles, and their prioritization comes in handy, exploring the intended flexibility given by the power to adapt to different economic conditions (Zhang 2005). Depending on the accounting method adopted by the company say cash or accrual basis, different firms declare the income rebates at different times. However, the declared rebate income ought to portray utmost accuracy where the declared values should reflect the intrinsic market conditions and not as projected.