Cookie-Jar Reserve
Definition
An accounting reserve built up in a period of strong earnings by overstating provisions or allowances, then released in a later period to smooth reported income. The building phase may involve over-provisioning beyond what GAAP permits, making the reserve itself a fraud vehicle.
Related terms
- Accrual Omission
- The failure to recognise a liability at period-end for services received but not yet invoiced, or for costs incurred but not yet...
- Capital Expenditure (Capex)
- Spending that provides an economic benefit over more than one period, capitalised as an asset on the balance sheet and expensed through...
- Capitalisation of Operating Costs
- The misclassification of a period cost as a long-lived asset. Instead of recognising the full cost on the income statement in the...
- Contingent Liability
- A potential obligation whose existence depends on a future uncertain event, such as pending litigation or a guarantee given to a third...
- Cut-Off Testing
- An audit procedure that examines transactions immediately before and after the period-end date to verify that each is recorded in the correct...
- Earnings Management
- The use of accounting choices, estimates, and timing decisions within the bounds of GAAP or IFRS to influence reported earnings. Permissible in...
- Financial-Statement Fraud
- Intentional misstatement or omission in financial reports to deceive users of those reports, typically to inflate earnings, understate liabilities, or maintain a...
- Materiality
- The threshold at which a misstatement or omission would influence the decisions of a reasonable user of the financial statements. Assessed both...
- Off-Balance-Sheet Financing
- Any arrangement that keeps debt or obligations from appearing on the consolidated balance sheet, including special-purpose entities, sale-and-leaseback structures, and operating leases...
- Operating Expense (Opex)
- Costs consumed in the current period, expensed in full through the income statement. Reclassifying opex as capex defers the income-statement impact across...
- PFUTP Regulations 2003
- The Securities and Exchange Board of India's Prohibition of Fraudulent and Unfair Trade Practices (Relating to Securities Markets) Regulations 2003. The primary...
- Reserve Manipulation
- The use of discretionary accounting provisions, such as allowances for doubtful debts or warranty accruals, to manage reported earnings by setting reserves...
Explained in these topics
- Earnings Management Versus Fraud: The ContinuumAn accounting reserve built up in a period of strong earnings by overstating provisions or allowances, then released in a later period to smooth reported incom...
- Expense and Liability ManipulationA liability or provision created in excess of its justified amount during a period of strong earnings, then released into income in a later weak period to smoo...