Identify the specific methods used by management to manage earnings.

Identify the specific methods used by management to manage earnings.

HealthSouth Corp., according to the Securities and Exchange Commission (SEC), overstated profits by at least $1.4 billion between the years 1999 through 2003 to meet or exceed Wall Street estimates. The allegations came just seven months after an earnings restatement and insider-trading charges triggered the investigation. Read more about it:

U.S. Securities and Exchange Commission (SEC). (2003). SEC charges HealthSouth Corp. CEO Richard Scrushy with $1.4 billion accounting fraud. 34. Retrieved March 10, 2009, from http://www.sec.gov/news/press/2003-34.htm
There is a tremendous amount of publicly available information about the fraud committed by HealthSouth Corp., a Birmingham, Alabama, health-services company. The fraud committed by this healthcare organization included many of the typical earnings-manipulation tricks such as capitalizing expenses, understating reserves for receivables, and extending the useful lives of equipment. There was none of the highly technical fraud such as seen in Enron.

The case study includes two elements. Consider the following aspects in your analysis.

Identify the specific methods used by management to manage earnings.
Establish a scenario where you are a midlevel manager in a healthcare organization and you suspect that management is manipulating earnings. You benefit from the manipulation because your bonus is based on earnings. In addition, you have determined that becoming a whistleblower will be detrimental to your career. What will you do? If you decide to be a whistleblower, what protection is available to you?

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