1. Is there a difference between aggressive accounting and earnings management? Would the motivation for using the techniques described in this case influence whether they should be labeled as aggressive accounting or earnings management? Incorporate ethical considerations in your answer.
2. How did pressures for financial performance contribute to Sunbeam’s culture, where quarterly sales were manipulated to influence investors? To what extent do you believe the Andersen auditors should have considered the resulting culture in planning and executing its audit?
3. Chapter 3 addresses issues related to corporate governance and ethical management. Given the facts of the case, identify deficiencies in ethics and corporate governance failures at Sunbeam.
4. Given the variety of income adjusting techniques described in the case that were used by Sunbeam to manipulated the numbers, do you think it was proper for the Andersen auditors to dismiss $2 million of the $5 million income from the sale of the spare parts inventory? What factors do you think Andersen should have considered in addition to materiality in making the determination?
5. Why is it important for auditors to use analytical comparisons such as the ratios in the Sunbeam case to evaluate possible red flags that may indicate additional auditing is required?