Investigating Cost Suppression Techniques to Inflate Earnings

Jesper Sørensen ()

Chapter Chapter 25 in Shorting Fraud, 2025, pp 251-262 from Springer

Abstract: Abstract In addition to tampering with revenue to manipulate earnings, the fraudulent company may also abuse manipulation of costs. This chapter explores cost suppression techniques used to inflate earnings. It details methods of cost manipulation, such as capitalizing costs, overstating asset useful lives, and failing to write down impaired assets. The chapter also discusses the red flags associated with these techniques, including premature feasibility, irrelevant expenses, and postponed amortization. Additionally, it covers the accounting standards for software capitalization, both under GAAP and IFRS, highlighting the potential for abuse due to subjective judgments. The chapter concludes by emphasizing the importance of scrutinizing financial statements for irregularities and understanding the various ways costs can be manipulated to present a misleading financial picture.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-81834-9_25

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DOI: 10.1007/978-3-031-81834-9_25

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