ACCT 433 Contemporary Accounting Issues Case study n2 Assume that ELMA is a Saudi company, which manufactures shoes and bags. The following information is released from the different annual reports: 1. In 2014, the marketing costs were capitalized and a lot of shoes and bags that cannot be sold are still recorded as assets. 2. In 2015, the CEO named Ahmed bin Salah, is hired in the company. 3. In 2018, the company has just 1,000 SAR of profit, compared to 2017 100,000 SAR of profit. 4. In 2019, A new CEO is hired (Anas bin Ali). 5. The Board of directors is consisted of 10 members: 3 are independent, 2 are non-executives and 5 are executives. Instructions: 1. Can we say that the CEO use moderate earnings management in 2014, explain the two examples for marketing costs and inventory (3 marks). 2. In 2016, the CEO (Ahmed bin Salah) did an analysis of the five previous years and he concludes that there is a great fluctuation between the years, so what kind of methods of earnings management, you think that the CEO applied ?, explain (3 marks) 3. In 2019, what is the method of earnings management you think that the new CEO (the ongoing CEO) will choose to manage the earnings, knowing that he thinks that he can do better next year, explain (3 marks) 4. Do you think that the board of directors has a role in determining how likely the managers are managing earnings, explain (3 marks) 5. Use the discussion board on the Blackboard to collaborate with each other