Earning Management Is It Good or Not - 1167 Words

Earning management is good or not? Introdcution This essay is to examine whether earning management is it good or bad. Though there is so many debate about whether it should be accepted to be good rather than bad, however, this essay will explain the both side of earnings management. Earnings management reduces the quality of financial reporting, it can interfere with the resource allocation in the economy and can bring adverse consequences to the financial market. This essay analyses both, causes and motives of earnings management as well as possible remedies. Therefore, it is not surprising that market participants, legislators, regulators, and academics are concerned with the need to control financial reporting abuses. The†¦show more content†¦Therefore, it is reasonable to assume that earnings restatement firms can be characterized as firms who knowingly and intentionally engaged in earnings manipulation. Financial Reporting Perspective Based on Hanna (1999) article in CA magazine review, important point to get across from this article is that management is tempted to provide excessive unusual, non-recurring and extraordinary charges, to put future earnings in the bank. Furthermore, these future earnings are buried in operations. This makes it difficult for investors to diagnose the reasons for subsequent earnings increases. Investors and analysts look to core earnings, ignoring extraordinary and non-recurring items Implies manager not penalized for non-core charges, such as write-downs, provisions for restructuring. But current non-core charges increase core earnings in future years, through lower amortization and absorption of future costs. As a result, managers tempted to ―overdose on non-core charges, thereby putting earnings ―in the bank also called cookie jar accounting. Conclusions The concept of the earnings management is difficult to define and very subjective to decide. I believe that earnings management not only due to violation of GAAP but also aggressively choose GAAP method that are considered as earnings management. This broad definition may discourage earnings management and benefitShow MoreRelatedEarning Management1159 Words   |  5 PagesEarning management is good or not? Introdcution This essay is to examine whether earning management is it good or bad. Though there is so many debate about whether it should be accepted to be good rather than bad, however, this essay will explain the both side of earnings management. Earnings management reduces the quality of financial reporting, it can interfere with the resource allocation in the economy and can bring adverse consequences to the financial market. This essay analyses both, causesRead MoreSatyam Scandal1623 Words   |  7 PagesSATYAM SCANDAL I. Analyze the case and respond to the following questions: (a) Discuss the earnings management techniques employed by the management of Satyam. In this case of Satyam, I can conclude that the obvious technique employed by the said management are: 1. â€Å"Big Bet on The Future†. When an acquisition occurs, the company acquiring the other is said to have made a big bet on the future. As refer to this case, Ramalingam Raju the Chairman of Satyam Computer Services LtdRead MoreEarnings Management Essay1007 Words   |  5 Pagesevidences of managers manipulating the earnings for various reasons. â€Å"Earnings management is the choice by a manager of accounting policies, or real actions, affecting earnings so as to achieve some specific reported earnings objective† (Scott, 2012, p. 423). Managers play an important role in the company because they have control over the accounting policies, thus, the managers can manipulate the income. There are different viewpoints about earnings management. Some people think it will protectRead MoreFar 600 Case Study-Jim Essay754 Words   |  4 Pageswhich is to accelerate the production and shipment of a large order to Imperial, in my opinion Jim proposal is a good earning management because under literature, Scott 2000, state that there are two type of efficient earning management and opportunistic earning management. While for this proposal it falls under efficient earning management. This is because Jim is trying to improve earnings informativeness in communicating private information. Jim is trying to accelerate the production and shipmentRead MoreThe Relationship Between Accounting Responsibility Of Real Earnings Management1036 Words   |  5 PagesHence, the negative impacts of earnings management and accusing earnings management as one of the main reason of last decade financial scandals have forced accounting setters and financial regulators to provide solutions and initiatives for hindering earnings management. However, most of the attempts have failed, since earnings managements researchers found that managers still can achieve their earnings management objectives, through manipulating real activities. So it is more useful to examine theRead MoreMidterm Exam Accounting 598 Part 11 464 Words   |  6 PagesPart 1 1. Earnings management issues are a primary focus of the SEC. 1a. One potential goal of earnings management is income smoothing. Briefly discuss why income smoothing might be a goal of management, including a discussion of incentives to smooth income. What techniques might be used to accomplish income smoothing beyond the selection of depreciation and inventory costing alternatives? Understandably, there are a variety of ways in which a company can manage their earnings, and if accomplishedRead MoreEssay on Ethics of Earnings Management784 Words   |  4 PagesI enjoyed the conversation on GAAP and earnings management relating to the case â€Å"Be Careful What You Wish For: From the Middle†. The conversation was brief, but got me thinking on the ethics of earnings management. GAAP accounting is to reflect in good faith the company’s actual financial status and present reality as is. It is not to present a manipulated set of numbers that paint a pretty picture. GAAP requires recording of revenue when there is persuasive evidence of an arrangement, assuranceRead MoreFraud Cases have Put Earnings Management back in the Spotlight778 Words   |  3 PagesDechow, 1995, Healy and Wahlen, 1999). Although earnings management is not a new phenomenon, the emerging of the fraud cases such as Enron, Lehman Brothers, and other instances of financial fraud have again put this topic in the spotlight. Emerging concerns over earnings management have led to new disclosure requirements and the implementation of corporate good governance codes such as the Sarabanes Oxly Act (SOX), tabaksblat and other corporate good governance codes to reduce this phenomenon withinRead MoreFnt1 Memo Example1345 Words   |  6 Pages|Sound Investment, Inc.| Memo To: Brian Little, President/CEO of Durable Home Goods From: , President/CEO Sound Investment, Inc. Date: 6/25/2011 Re: Durable Home Goods Brian, Attached you will find my analysis of Durable Home Goods (DHG) for fiscal year 11 and my insights on some of your strengths, weaknesses, and opportunities to drive topline sales in 2012. Current Ratio The current ratio is an indication of a company’s ability to pay current liabilities with current assets. The formulaRead MoreLilly s Long Term Debt Ratio1496 Words   |  6 Pagesto be good, its total debt-to-equity ratio, which is much more comprehensive, is above the reasonable limit and indicates that the firm has more debt than equity. Thus, weakening its long-term financial position. Summary of Firm-level Inherent Risks The following factors could either increase or decrease firm-level inherent risks for Lilly’s 2011 audit: †¢ A fall in earnings and other key statistics such as ROA, ROE and Gross Profit Margin generally increases inherent risk due to management incentives