What is meant by the term earnings management

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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

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