Accrual accounting numbers are interpreted broadly even if legal; since estimates are used to calculate their earnings. Companies can use estimates that make it appear as though sales and earnings are growing faster than they really are. One can report revenues after estimating discounts they will give to insurers and for charity cases. These discounts are typically two-thirds of list price, so a slight change in what HMA figures they will cost could have a large impact on its income How companies account for customers’ bad debts can have a huge impact on earnings. Each quarter they set aside reserves for loan losses — essentially guesses of how much money owed by deadbeats is unlikely to be paid. The lower the estimate, the higher the earnings. By changing the costs they estimate for inventory that will be obsolete before it can be sold, companies can give their earnings a substantial boost. Also, because analysts and investors are focusing on cash flow from operations as an indicator of financial health, those numbers are now a prime target for fixing. Companies have had to report cash flows since 1988, classifying them into one of three categories: operating, investing, and financing. You can exploit the GAAP. FASB needs to crack down on pretty much everything, but stockholders/financial analysts need to pay attention as well. It has to crack down without overloading the already highly-regulated corporations.
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