Discuss how a company can use intercompany transactions to manipulate corporate earnings.

How can a business manipulate inter-company transactions?

Intercompany transaction are used in a number of ways by corporations. They can also be manipulated for the purpose of manipulating corporate earnings. This involves transferring assets, funds or services from one organization to another. These transactions can be as simple as buying and selling between branches, or as complex as accounting treatment such as setting accounts payable and receivable up across divisions.

These types of transactions can be used by companies to falsely represent their financial performance, resulting in higher profits being reported than they actually are. When it is time to report earnings, it could be inflated if a company moves money from one area of the business to another through an intercompany transfer that was not correctly recorded. Furthermore, overstating sales through related party transactions while understating expenses can also provide false impressions about the company’s performance when it comes time for investors or shareholders reviewing the results.

Intercompany transactions can often be legitimate, but they also carry the risk of being used unethically to manipulate earnings for corporations if they are not closely monitored. All parties should be vigilant in reporting such transactions so any irregularities can be detected and the appropriate measures taken.