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litigation/litreleases/Ir17934.htm). Describe management's scheme for inflating revenue. Mystery Technologies, Inc., a hypothetical company, is a leading manufacturer of bar-code scanners C2-3 and related information technology whose stock is traded on the New York Stock Exchange. In Ethical issues: Earnings 20X3, the SEC filed allegations that during the previous five-year period, the company manipulated management (LO 2-11) millions of dollars in revenue, net income, and other measures of financial performance. These manipulations were designed to meet financial projections driven by Wall Street expectations and were allegedly engineered and/or facilitated by the company's chief accounting officer (a CPA). An example of the various ploys used by Mystery Technologies occurred in 20X1 when an officer and other employees created an excessive reserve of $10 million for obsolete inventory. This $10 million cushion was a "cookie jar" reserve designed for use when the company failed to meet its quarterly forecast, and it exceeded any reasonable estimate of the company's expo- sure for obsolete inventory. This reserve was released into earnings in the fourth quarter of 20X1. By making this and other adjustments that quarter, Mystery Technologies reported net income of $13.4 million rather than a $2.4 million loss and hit the quarterly forecast right on the nose. The reversal of this "cookie jar" inventory reserve and the favorable impact on reported earnings were not disclosed to the public. Required: Identify the ethical issues involved with the "cookie jar" reserves and the economic conse- quences for parties affected by the chief accounting officer's actions. (Hint: Reference the AICPA's Code of Professional Conduct for CPAS.) connect Additional study material is available in Connect. This publication is designed to provide accurate and authoritative information in regard to the subject matter. It is sold with the understanding that the publishers and the authors are not engaged in ren- dering legal, accounting, Investment, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought