Smoothing Earnings

This is a practice where a firm smooths net income by using GAAP techniques to level off fluctuations between periods.

Freddie Mac understated earnings by more than $5 billion over three years to keep earnings consistent and investors happy. According to The New York Times, Freddie Mac lost $111 million during a period it announced net income of nearly $1 billion. Freddie Mac only reported half of what it reported it earned during the third quarter of the year, stating that it earned about $1 billion rather than $2 billion.