The Matrix Format Income Statement: A Case Study about Earnings Management and Reporting Financial Performance

Abstract

The Matrix Format Income Statement case study allows you to explore the issue of earnings management and its impact on the transparency and understandability of reported financial results. Part A of the case demonstrates the impact of a commonly used accounting treatment for available-for-sale investments (presentation in the statement of changes in equity and recycling of fair value changes) on users' ability to extract decision-useful information. Part B investigates the effect on transparency and understandability of the same financial information when a different presentation and measurement approach, known as the matrix format income statement, is used.