Reference no: EM132691961

Advanced Accounting Theory Question:

Earnings management has been defined by Schipper (1989) as "...purposeful intervention in the...financial reporting process...." Management has a number of tools at its disposal to manage earnings if it so desires. Management also has various incentives to manage earnings.

Problem 1: Assuming earnings management can be accomplished legally (i.e., without recording fictitious journal entries or committing other acts of outright fraud), is it a good thing (something management should do) or a bad thing (something that should be prohibited)?

Problem 2: In formulating your response, consider the individual and organizational incentives management has to manage earnings, the stakeholders (e.g., current and potential investors and creditors, analysts) that are directly and indirectly impacted by earnings management, what you know about the conceptual framework, and the purpose of financial reporting. You may also want to consider that one's position on the acceptability of earnings management may be influenced by one's perspective (as a manager, regulator, user, etc.).