Teaching Notes for Quality of Earnings and Accounting Estimates: A Case of Decisions

Accounting inherently incorporates the use of estimates and assumptions in developing financial statements. The approaches managers take in arriving at estimates affect the perception of earnings quality and decisions made by financial statement users. This case requires students to make accounting estimate decisions based upon a hypothetical scenario with realistic pressures and conditions. Students develop critical‐thinking skills by documenting the reasons for their decisions and participating in open‐ended classroom dialogue about the influence of environmental factors on accounting estimates and the resulting quality of earnings. These notes include possible factors affecting student decisions, alternative solutions, quality of earnings considerations, questions for classroom discussion, and approaches to grading the written assignments.