Lifting the Lid off the Cookie Jar: Using Data Visualizations to Analyze Madeline, Inc.'s Expense Recognition Patterns

ABSTRACT This case employs data visualizations to analyze trends in the underlying processes relating to two key accrued expenses—estimated warranties and bad debts—to uncover evidence of the “cookie jar reserve” earnings management scheme. The case is geared toward upper-level undergraduate accounting students. Students compare trends in the two accrued expenses against peers in the industry, document anomalies, consider logical explanations for the occurrence of these irregularities and perform additional analyses to either support or refute them, and summarize the implications of their findings. After the earnings management scheme is apparent, students recalculate reported earnings data to visualize the effect of the scheme on the company's ability to achieve the analysts' forecasts, highlighting an important motivating factor to engage in earnings management in the first place. The case also emphasizes the importance of increasing reserves on the balance sheet in anticipation of understating expenses in future periods. Data Availability: Data are available upon request. JEL Classifications: M40; M41; M42.