1. Review the definitions of earnings management by Schipper, Healy and Whalen, Dechow and Skinner, and McKee that are discussed in this chapter. How would you characterize the proposed accrual for unpaid bonuses and severance payments from an earnings management perspective?
2. Place yourself in Ben Davis shoes and consider the following in deciding whether to support Hodgins position on the accrual:
a.Who are the stakeholders in this case?
b.What are the accounting issues of concern to you?
c.What are ethical issues of concern to you with respect to your ethical and professional obligations and stakeholder interests?
3.Assume you meet with Hodgins and he instructs you in no uncertain terms to record the accrual. What would you do and why? Would whistle blowing be a consideration for you? Why or why not?