Reference no: EM133048945

Question - Dunmore (2007, p33) mentioned that there is "no real figure against which reported earnings can be tested. It is not possible to demonstrate that one allowed accounting method (e.g. historical cost or revaluation of fixed assets) gives the 'true' profit and the other a 'false' profit. If we could measure the true earnings figure, we could simply report it, and there would be no need for accounting standards at all". Hence, the absence of a 'real' earnings figure creates the opportunity for earnings management, and the incentives to report a particular result create the motivation".

Required -

a) Explain what is meant by earnings management and suggest how accrual accounting can be used to manage earnings.

b) Explain 'income smoothing' and 'big bath' accounting.

c) Discuss whether or not earning management is ethical.

d) Discuss whether ethics can be taught, especially in terms of assuring ethical behaviour in future accountants.