1. Is the accounting for revenue in the Victor transaction a case of operational earnings management or accounting earnings management? Explain. Briefly address auditing challenges of this kind of transaction.

3. Assume you are in Madison Gilmores position. Answer the following questions as you prepare for the meeting with Levin and Goldberg.

* What are the main arguments you are trying to counter?

* What is at stake for the key parties, including those who disagree with you?

* What levers can you use to influence those who disagree with you?

*What is your most powerful and persuasive response to the reasons and rationalizations you need to address?

Assume the meeting concludes and nothing has changed. Gilmore failed to change the minds of Levin and Goldberg.

4. At this point would you recommend to Gilmore that she should go to the audit committee with her concerns? Explain your reasoning.

Assume Gilmore goes to the audit committee and nothing changes. The revenue was recorded and earned revenue as of March 31. The good were shipped to the warehouse on that day. The sale was completed on April 5. A refinancing of the $10 million loan was made shortly after April 5.

5. If you were in Madison Gilmores position, would you blow the whistle on what you perceive to be the manipulation of the earnings for the quarter ended March 31? Under what circumstances might you blow the whistle? Who would you contact to inform them of what you consider to be earnings manipulation?