1. A variety of definitions of earnings management are given in this chapter. Discuss the accounting techniques used by North Face by evaluating whether and why earnings management exist educing the definitions provided by: Schipper, Healy &Wahlen, Dechow & Skinner, and McKee.
2. An important issue in this case is the application of materiality standards to revenue recognition on the barter transaction. Evaluate the ethics of Deloitte & Touche first proposing an audit adjustment on the $1.64 million balance of the December 29, 1997, transaction with the barter company and then passing on the adjustment based on it not having a material effect on the financial statements. Be sure to include both quantitative and qualitative materiality considerations.
3. Deloitte & Touche made audit decisions related to the barter transactions that can be criticized from an ethics perspective because of violations of the AICPA Code of Professional Conduct. Evaluate those decisions and explain the nature of the criticisms.