What is meant by the term earnings management

Reference no: EM132861581

1. What is meant by the term ‘earnings management'? What are the incentives for managers to manage earnings? (from Godfrey)

2. Do you consider earnings management to be good or bad? Why?

3. Outline the five methods discussed in this chapter that entities can use to manage earnings. Discuss the circumstances in which entities are likely to use each method.

4.Table 9.1 presents examples of some common accounting decisions, and how companies following a conservative, moderate, aggressive or fraudulent strategy might use these to manage earnings. Prepare a similar table and complete it in relation to the following accounting decisions:
(a) Revenue recognition from services
(b) Intangible assets
(c) Impairment of non-current assets
(d) Revaluation of non-current assets

5. You have recently been appointed as a researcher for a firm of share analysts. As one of your first roles you are required to prepare a report for your manager to outline common techniques used to manage or manipulate earnings. From your prior accounting knowledge you would have gained an understanding of techniques you can use to examine entity performance and profitability, including trend analysis. Document what strategies you might use as an analyst to detect earnings management using accounting information.

Case study 9.1: The ethics of earnings management

1. Why would the NZSO wish to smooth income?

2. Were the earnings management techniques the NZSO used ethical? Explain your answer.

3. What factors would you consider when determining whether such a decision was ethical?

Reference no: EM132861581

Questions Cloud

Testing a macro before deployment : What precautions might you take to ensure consistency across platforms for end users?

What are the distinctive features of an intangible asset : What attributes must something possess in order to be defined as an asset? Why? What are the asset recognition rules? (Applying the principles in the 2018

Ethics and corporate social responsibility : Under what conditions is it ethically defensible to outsource production to the developing world where labor costs are lower when such actions also involve layi

International convention on civil aviation : Annex 14 and the International Convention on Civil Aviation (ICAO) state that the airport design must comply with a detailed set of physical standards

What is meant by the term earnings management : What factors would you consider when determining whether such a decision was ethical and Were the earnings management techniques the NZSO used ethical? Explain

What does accounting harmonisation mean : Outline some reasons the US regulators are likely to accept financial reports prepared under IFRSs rather than US GAAP for listing purposes.

Describe the valuation techniques : What alternative measures are used in the accounting to value items and Why has the IASB chosen to use exit price as the primary measure of fair value

Difference between current and replacement costs : Define measurement in the context of accounting and financial reporting. Why is measurement so important in accounting

Creation of a truly global capital market : What factors do you think are holding back the creation of a truly global capital market? How might a global capital market function?

User Account

All Pages