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Earnings Management Strategies
Emerson Electric is engaged in design, manufacture, and sale of a broad range of electrical, electromechanical, and electronic products and systems. The following shows Emerson’s net income and net income before extraordinary items for the past 20 years (in millions):
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Emerson has achieved consistent earnings growth for over 160 straight quarters (over 40 years).
Required:
a. What earnings strategy do you think Emerson has applied over the years to maintain its record of earnings growth?
b. Describe the extent you believe Emerson’s earnings record reflects business activities, excellent management, and/or earnings management.
c. Describe how Emerson’s earnings strategy is applied in good years and bad.
d. Identify years where Emerson likely built hidden reserves and the years it probably drew upon hidden reserves.
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