Earnings Management: Strategies and Intentions Behind Income Reporting

This assignment examines the strategies behind earnings management and the ethical considerations involved in income reporting.

Mia Martinez

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EarningsManagement:StrategiesandIntentionsBehindIncomeReportingJudgmentCase4-3(page225)CompaniesoftenareunderpressuretomeetorbeatWallStreetearningsprojectionsinordertoincreasestockpricesandalsotoincreasethevalueofstockoptions.Someresorttoearningsmanagementpracticestoartificiallycreatedesiredresults.Required:Isearningsmanagementalwaysintendedtoproducehigherincome?Explain.JudgmentCase4-3No.Companiesgenerallyprefertoreportearningsthatfollowasmooth,regular,upwardpath.Theytrytoavoiddeclines,buttheyalsowanttoavoidincreasesthatvarywildlyfromyeartoyear.Itisbettertohavetwoyearsof15%earningsincreasesthana30%gainoneyearandnonethenext.Asaresult,somecompanies“bank”earningsbyunderstatingtheminparticularlygoodyearsandaothobonliodweafifo$0tmomanoncomainontmbadconesI~StudyXY

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