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If directors get bonus for a target profit , manipulation of profit is an audit risk right. One of the books said Manipulation of profits through the use of provisions. If we create a provision it will decrease profit not increase it right.. Hows manipulation by provisions happen if we are aiming to increase profits
Releasing it the following year will increase profits. So fake provisions can shift profits around, perhaps to hit target profits in eachmyear rather than over in ine, under in next.
Okay. so as in instead of creating a provision this year for say bad debt , they do it next year thus increasing current years provision due to understatement
I think of it as follows. You see that there are more profits than you need to get this year’s bonus. Set up a false provision to lower profits to the minimum you need. Next year releasing/reversing that provision will boost profits to increase your chances of getting a bonus then too.
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