Tweaks can boost look of earnings

NEW YORK (AP) – Gaming a financial statement to meet earnings expectations has its own colorful nomenclature: cookie-jar accounting, channel stuffing and “the big bath.”

If a company’s earnings meet analyst estimates, the stock gets boosted. If they don’t, it’s busted. But wise investors remember there are many ways a company can prettify its earnings.

A study by independent research firm RateFinancials, based in New York, concluded that nearly 33 percent of Standard & Poor’s 500 companies file financial statements that don’t accurately reflect their financial condition.

For instance, there’s channel stuffing, when a company makes sales look better by shipping products to customers with the understanding those products can later be returned, or bought at a deep discount, said Itzhak Sharav, an accounting professor at Columbia University.

Another way to doll up the books is the cookie jar reserve. Companies can put aside a reserve of cash when times are good, then use it later.

Or they can take a bigger than needed hit when times are bad. Using accounting tactics to make one quarter look worse than it really was, often by putting aside reserves, is called “the big bath.” It’s also very common for companies to announce big fourth-quarter writedowns, taking charges for restructurings planned the following year, to get the bad news out of the way.