Infosys: Assessing Earnings Quality

Name: Infosys: Assessing Earnings Quality (English version)
SKU: W39421

Soumik Bhusan, Amrinder Singh, Sreesitava Banerjee

Product #:W39421

Supplier:Ivey

Discipline:Accounting, Finance

Setting:India, 2024

Details:Case (PDF) • 12 pages • 2025-01-09

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In 2024, Infosys Limited was the second-largest company in India’s information technology software industry. Its software services offerings were diversified across different sectors, with a large part coming from exports. As required by India’s government, Infosys Limited applied Indian accounting standards in its preparation and presentation of financial statements. A senior analyst with an investment advisory firm in India, was asked to evaluate how the new Indian accounting standard, Ind AS 115, impacted the performance of Infosys Limited and its competitors by reviewing financial performance in recent years and results for the last three quarters of fiscal year 2023–24. Which specific ratios will provide an indication of prudent revenue recognition? What was the impact of Ind AS 115 on Infosys?

Learning Objectives

The case is suitable for graduate-level courses on financial accounting, financial statement analysis. This case is also suitable for in-house company training and management development programs for practitioners of forensic accounting and financial accounting for non-finance executives. This case helps students understand the concept of financial exploration on earnings quality using both traditional and new accounting methods. The case presents some techniques for identifying misleading practices, although they do not confirm the existence of fraud. Rather, the process highlights the need to delve deeper in the practice of revenue recognition and assess adherence to accounting standards. The case helps students understand the concept of accrual accounting and its ramifications on revenue recognition. Students will also learn about accrual ratios and discriminant models for identifying imprudent accrual practices that could impact earnings quality. After working through the case and assignment questions, students will be able to

understand the logic of cash and accrual basis of accounting;
understand the concept of imprudent financial practices (also known as “financial shenanigans”);
analyze a company’s performance using the DuPont framework;
assess the quarterly financial performance of a company using basic financial ratios;
apply accrual ratios to reveal imprudent practices that can impact earnings quality; and
deploy a discriminant model to quantify the extent of discretionary accrual practices.

Infosys: Assessing Earnings Quality

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Learning Objectives