Unfortunately, your browser is too old to work on this site. Furthermore, according to Sevin & Schroeder (2005), opportunistic earnings management serves the interests of managers at the expense of stakeholders. The objectives of such earnings management are information symmetry, corporate control contests, stock compensation (Healy and Palepu 410). July 13, 2020. https://ivypanda.com/essays/earnings-management-and-potential-benefits/. Although the methods used by managers for income smoothing are vary and can be very complex and confusing, the most important thing to keep in mind is the driving force behind managing earnings is to meet a pre-determined target result. Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. "Earnings Management and Potential Benefits." 2020. Healy and Wahlen (1999: p.380) in their study "A Review of the Earnings Management Literature and its Implications for Standard Setting", pinpoint that "prior research has focused almost exclusively on understanding whether earnings management exists and why." Earnings Management and Potential Benefits, Classification Shifting for Earnings Management, Annual Bonus Schemes and Earnings Manipulation, Hypothesis development, data, and variables definition, The Importance of Forecasting on Sales Management Decision Making, Maryland State Record Card and State Benchmarks, Ethical and Legal Implications of Insider Trading, The Elasticity of Oil Production and Consumption, The Attitude to Vocation as the Theme of Michael Dorris “The Benchmark”, Concept of Corporate Reporting in Different Economic Sectors, Treatment of Intangible Assets in Billabong, Testosterone Impact on Financial Misreporting, Sage 50 Accounting System Critical Analysis. (2020) 'Earnings Management and Potential Benefits'. Accordingly, it is expected that the outcome of this approach ensures better financial reporting quality by lowering the level of earnings management. This is IvyPanda's free database of academic paper samples. Print. Moreover, the variations of financial reporting and the acts of earnings management can be explained by the factor of the availability of different potential benefits. It highly impacts strategic planning and decision-making processes that lead to the company’s future success and growth. The second one is the earnings management that only takes place in accruals, such as delaying the reporting of the payment in the financial documents or oppositely reporting the future profits. The database is updated daily, so anyone can easily find a relevant essay example. For a project management consultant, achieving a professional certification can be a big asset to your business. “1988 Competitive Manuscript Award: Did Firms Undertake Debt-Equity Swaps for an Accounting Paper Profit or True Financial Gain?” Accounting Review 1.1 (1989): 587-623. Laws and regulation of accounting are extremely complicated and complex, which makes it very tough and difficult for regular investors to pick up on accounting scandal before they happen. One of the most significant indicators of managerial efforts to benefit from earnings management is high rates of insider stock sales. Downward earnings management depresses a firm's performance, adversely affecting executives' performance evaluation and compensation. "Earnings Management and Potential Benefits." If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda. However, it is the natural outcome of the flexibility (choices) inherent in GAAP and exercised with appropriate economic evaluation. The advantages can be grouped by taking into consideration the direct beneficiary of earning management: managers and the firm. IvyPanda. It leads to the assumption that insider stock sales can be associated with the lack of control over the performance by the directors and the poor overall governance (Klein 398). The other benefit that we can obtain from applying earnings management in organization is to avoid losses. In fact, given the financial manager's theoretical goal of stockholder wealth maximization, one type of earnings management which is income smoothing, is desirable, because it reduces the variability in the future expected cash flows, drives down the cost of equity and debt, and maximizes share price.
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