Investigating Revenue Recognition & Cost Inflation Techniques to Suppress Earnings

Jesper Sørensen ()

Chapter Chapter 26 in Shorting Fraud, 2025, pp 263-266 from Springer

Abstract: Abstract This chapter explores the concept of earnings suppression, a less common practice than earnings inflation. It outlines various techniques used to understate a company’s financial performance, including the intentional postponement of revenue recognition, bundling sales with company-controlled sub-delivery, and the creation of artificial or unrealistic sales contingencies. The chapter also details methods of cost inflation, such as the accumulation of excessive reserves and the manipulation of impairment charges. These techniques can be used to artificially suppress earnings, often with the goal of misleading investors and other stakeholders. Recognizing the red flags associated with these practices is crucial for investors seeking to accurately assess a company’s financial health.

Date: 2025
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DOI: 10.1007/978-3-031-81834-9_26

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