...The reason for and benefits of good earnings management Earnings management is a strategy used by the management of company to manipulate the company’s earnings so that the figures match a pre-determined target. This practice is carried out for the purpose of income smoothing. Thus, rather than years of exceptionally good or bad earnings, companies will try to keep the figures relatively stable by adding and removing cash from reserve accounts. One of the good earnings management activities is describe as income smoothing. It is involve that management taking actions to try to create stable financial performance by acceptable, voluntary business decisions in the context of competition and market developments. Income smoothing can be used by management that the entity when making sufficient profit to allow it. And the reason is why the management using income smoothing that the main reason is its remuneration for controlling shareholders. The benefits lie in transferring wealth to the old shareholders from new shareholders The accounting policy choice would be whether from company should be a voluntary early adopter of a new accounting standard or wait two years until adoption of the new accounting standard is required of all companies. An example of a proper management operating decision would be whether or not to implement a special discount or incentive program to increase sales near the end of a quarter when revenue targets are not being met. Another...
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...© 2000 American Accounting Association Accounting Horizons Vol. 14 No. 2 June 2000 pp. 235-250 Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators Patricia M. Dechow and Douglas J. Skinner Patricia M. Dechow is an Associate Professor and Douglas J. Skinner is a Professor, both at the University of Michigan. SYNOPSIS: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and reguiators. Practitioners and reguiators often see earnings management as pervasive and probiematic—and in need of immediate remediai action. Academics are more sanguine, unwiiiing to beiieve that earnings management is activeiy practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management. INTRODUCTION Despite significant attention on earnings management from regulators' and the financial press,^ academic research has shown limited evidence of earnings management. While practitioners and regulators seem to believe that earnings management is For example, SEC Chairman Levitt delivered a major speech on earnings management in the fall of 1998 in which he advocated a niunber of initiatives to improve the quahty of financial reporting (Levitt 1998). As part...
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...Academic Year: 2014/15 Module code: P13505, Level 3 Autumn Semester Module Outline: Auditing, Governance and Scandals (AGS) |Module Convenor |Dr. Kevin Dow, AB474 | |Lectures |Dr. Kevin Dow | | |TH 4:00-5:30, TB 329 | |Additional Staff |Cass Lai, AB247 | |E-mail addresses |kevin.dow@nottingham.edu.cn | | |cass.lai@nottingham.edu.cn | |Office Hours |Dr. Kevin Dow: Th, 2:00 pm - 4:00 pm, every Thursday until Exams (except December 11 and 25) | | |Cass Lai: Th, 2:00 pm - 4:00 pm | KEY POINTS • This is a Level 3, 10 credit module; • Assessment basis: a one and a half hour Examination (100%); • Keywords: Audit; Governance; Corporate Scandals; Audit Theory and Practice; Accountability; • Pre-requisite module: P12307 Financial Reporting. MODULE AIMS To use a mix of textual and...
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...Abstract With the rapid development of society and economy, the earning management in capital market becomes one of the hottest issues of general public. Earnings management actually is a process that the management of the firms control the financial report. In this research paper, I will talk about the fundamental of the earnings management, it including the concept and the feature of the earning management as well as the effect of the earnings management. Contents Abstract………………………………………………………………………………..2 Concept of earnings management……………………………………………………..4 Feature of earnings management……………………………………………………...5 Patterns of earnings management……………………………………………………..6 Evidence of earnings management for bonus purpose…………………….................7 Other motivations for earnings management……………………………………........8 The good and bad side of earnings management……………………………..............9 Conclusions…………………………………………………………..........................10 Reference………………………………......................................................................12 1. Concept of earnings management Since the 80s of 20th century, earnings management became a hot research subject in the international economics and accounting educational circles, the financial reporting and a contracting perspective can be viewed related to this hot subject. An accurate understanding of earnings management is very important to accountants, because it related to the understanding the usefulness of net income which...
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...Introduction Theoretically, earnings management is a technique taken by manager in manipulating accounting transaction in order to achieve some specific objective. This is more likely to occur in few circumstances either the company unable to meet the investor expectation or sometimes also due to several motivation factors. Even though earnings management is often intentionally to misleading information, however it is consider as “allowable but unethical” as long as not lead to fraudulent activity. This concept is said to be unethical because it still against the objectivity and the originality of that standards even complying all the basic requirements. In this writing provide some discussion of literature review of the CEO changes and earnings management. Generally, according to big bath hypothesis, the CEO is trying to hide current higher earnings in order to secure their position in future drop earnings performance. In other hand, the contemporary CEO claim that he always does not have sufficient time especially on his first year tenure to show his capability, hence take opportunistically behavior by manipulate the account in achieving their target. Also, in few cases, CEO’s compensation also being some motivation factors. CEO big bath hypothesis Generally, the likelihood involuntary CEO turnover are positively related to a firm's earnings management. The relation surrounding CEO turnover also occurs either the current performance good or bad. Big Bath in accounting...
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...Earnings management is the choice by a manager of accounting policies, or real actions that affect earnings, so as to achieve some specific reported earnings objective. Earnings management involves the artificial increase (or decrease) of revenues, profits, or earnings per share figures through aggressive accounting tactics on all earnings. Aggressive earnings management is a form of fraud which differs from reporting error. Most of this happens when management of the companies need to present and show the earnings at a certain level or certain loopholes in financial reporting standards. These are fraudulent reporting due to unfulfilling the accounting practice principles with the techniques of revenue recognition, accounting policy change, timing adoption of new standards, write-off, asset sales, provisions, accruals (discretionary) and direct changes to retained earnings. Types of Earnings Management: 1) Unsuitable revenue recognition 2) Inappropriate accruals and estimates of liabilities 3) Excessive provisions and generous reserve accounting 4) Intentional minor breaches of financial reporting requirements that tied to material breach. All of this had been used by some companies to influence the figures by bending the rules rather than breaking them, anticipate or increasing the income reduce or delay the recognition of the expenses and shifting way from debt or losses. Pattern of Earnings Management: 1) Big Bath accounting is the process where publicly traded corporations...
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...SUMMARY ON EARNINGS MANAGEMENT Earnings management, is the creative use of different accounting techniques to make financial statements look better. There are two types of earnings management, which may be income increasing (positive EM) and income decreasing (negative management). The modest earnings management has its positive side. View of the role of the signal from the information point of view, earnings management is an internal information management will be communicated to other stakeholders as a tool. A reasonable choice of accounting policies and disclosure of accruals, can be business-related internal information passed on, and thus affect the cost of capital. Earnings management also avoids excessive fluctuations in the profits of enterprises, profit-oriented itself is stable and long-term trends of the future of the enterprise as a good explanation. In addition, the operator can also use the surplus to manage the situation is not expected to make a flexible response, to a certain extent, to avoid breach of contract, thereby reducing the corporate cost of capital. However, there are also drawbacks of earnings management. First, earnings management is a non-effective short-term behavior, it will not increase their profits, they may even aggravate the enterprises operating difficulties, damage to the interests of shareholders. Earnings management deliberately distorts some of the accounting data, thereby reducing the financial statements, information, reliability...
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...Creative accounting and earnings management are euphemisms referring to accounting practices that may follow the letter of the rules of standard accounting practices, but certainly deviate from the spirit of those rules. They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations desired by the authors. The terms "innovative" or "aggressive" are also sometimes used. The term as generally understood refers to systematic misrepresentation of the true income and assets of corporations or other organizations. "Creative accounting" is at the root of a number of accounting scandals, and many proposals for accounting reform – usually centering on an updated analysis of capital and factors of production that would correctly reflect how value is added. Newspaper and television journalists have hypothesized that the stock market downturn of 2002 was precipitated by reports of accounting irregularities at Enron, Worldcom, and other firms in the United States. One commonly accepted incentive for the systemic over-reporting of corporate income which came to light in 2002 was the granting of stock options as part of executive compensation packages. Since stock prices reflect earning reports, stock options could be most profitably exercised when income is exaggerated, and the stock can be sold at an inflated profit. The most notable activist is Abraham Briloff ...
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...------------------------------------------------- EARNINGS MANAGEMENT IN RELATIE TOT DE BONUSCULTUUR Inhoudsopgave 1. Inleiding 2 1.1 De aanleiding 2 1.2 De probleemstelling en onderzoeksvragen 2 1.3 Onderzoeksopzet en structuurinhoud 3 2. Earnings Management 5 2.1 Definities van earnings management 5 2.2 Motieven voor earnings management 7 2.2.1 De kapitaalmarkt motieven 7 2.2.2 De contractuele motieven 8 2.2.3 De wet- en regelgeving motieven 9 2.3 Meten van earnings management 10 2.3.1 Systematische keuze voor/aanpassing van de accountingmethoden 10 2.3.2 De accruals meetmethode 10 2.3.3 Evaluatie van- en de keuze voor het meetmodel 14 2.4 IFRS 15 2.5 Het beloningsplan in relatie tot earnings management 16 4. Resultaten 20 Literatuur 25 Bijlage 27 1. Inleiding 1.1 De aanleiding “Voormalig topman SNS Reaal legt al zijn functies neer” luidde de krantenkop in het NRC Handelsblad op 3 februari 2013. De oud topman van SNS Reaal Van Keulen heeft zich teruggetrokken als voorzitter bij Holland Financial Centre toen bekend werd dat SNS Reaal werd genationaliseerd. De ondergang van SNS Reaal is ontstaan door een aantal factoren waaronder mismanagement van Keulen en andere topbestuurders van SNS. Het tij kan keren. Van Keulen werd, in de jaren voor de nationalisatie, beloond voor zijn werkzaamheden met een bonus van maar liefst 1,8 miljoen euro. Dit zorgde voor grote verontwaardiging in de publieke opinie. Hoe...
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...Earnings Management Eli Mudrick Professor David Heier, CPA, MBA 11 June 2014 Earning Management This paper looks at the speech entitles “The ‘Numbers Game’” that SEC chairman Arthur Levitt delivered at the NYU Center for Law and Business regarding earnings management in 1998. While companies use many techniques and illusions to improve their numbers, this paper will only look at three: “Cookie-Jar” Reserves, “Big Bath” Charges, and Revenue Recognition. After discussing and using real world examples of these techniques, this paper will examine ethical questions related to the selection of audit committee members such as qualifications and independence. Cookie Jar Reserves Cookie Jar reserves refers to the practice of intentionally recording unreasonable estimates or one time transactions during good economic times in order to smooth out activity in bad economic times (Levitt). These transactions directly violate, not only simple human honesty, but also Conservatism, one of the main accounting principles. A real world example of the use of cookie jar reserves is the computer company Dell. In 2010, they paid a penalty to the SEC of $100 million dollars due to their using of cookie jar reserves. To establish their reserves, Dell did not disclose payments from Intel which were paid in order to maintain exclusive use of their microprocessors. When times were tough, Dell drew on these reserves. At one point, these reserves made up more than 70% of their quarterly earnings...
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...104 Jurnal Akuntansi & Keuangan Vol. 2, No. 2, Nopember 2000: 104 – 115 EARNINGS MANAGEMENT: SUATU TELAAH PUSTAKA Tatang Ary Gumanti Dosen Fakultas Ekonomi Jurusan Manajemen dan Akuntansi - Universitas Jember ABSTRAK Earnings management atau manajemen laba merupakan suatu fenomena baru yang telah menambah wacana perkembangan teori akuntansi. Istilah manajemen laba muncul sebagai konsekuensi langsung dari upaya-upaya manajer atau pembuat laporan keuangan untuk melakukan manajemen informasi akuntansi, khususnya laba (earnings), demi kepentingan pribadi dan/atau perusahaan. Manajemen laba itu sendiri tidak dapat diartikan sebagai suatu upaya negatif yang merugikan karena tidak selamanya manajemen laba berorientasi pada manipulasi laba. Secara teoritis ada banyak cara atau metode yang dapat ditempuh oleh manajer (pembuat laporan keuangan) untuk mempengaruhi laba yang dilaporkan (reported earnings) yang memang memungkinkan ditinjau dari teori akuntansi positif (positive accounting theory). Teori akuntansi positif menjelaskan bahwa manajer memiliki insentif atau dorongan untuk dapat memaksimalkan kesejahteraannya. Bukti-bukti empiris menunjukkan bahwa praktek manajemen laba ditemui dalam banyak konteks. Hal ini menunjukkan bahwa peristiwa atau variabel-variabel ekonomi tertentu dapat dijadikan sebagai sarana untuk memanaje laba. Kenyataan tersebut memberikan peluang bagi para peneliti akuntansi khususnya, dan peneliti manajemen umumnya, untuk meneliti kemungkinan munculnya manajemen...
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...2 Corinthians 4 - IVP New Testament Commentaries Resources » Commentaries » 2 Corinthians » Chapter 4 » exegesis View 2 Corinthians 4:7-12 * * * * * God's Power Is Made Known Through Ministerial Hardships Virtually every archaeological dig in the Middle East has unearthed innumerable pieces of pottery from earliest civilization forward. Pottery seems to have been a favorite material for fashioning a wide variety of utensils. It was not a costly material. The well-to-do turned to materials such as ivory, glass, marble, brass and costly wood. Pottery, on the other hand, was the material of the common person. It was used to make everything from pitchers, oil jars and bowls to griddles, washbasins and pots. Coarse clay was preferred for utilitarian ware. For more expensive vessels, the potter first refined the clay by treading it out in water. Clay pots found many uses. Items of value could be kept in them, and clay jars were especially popular for storing liquids because the pottery hindered evaporation and kept the contents cool at the same time. Even broken pieces of pottery, or "shards," found a use as writing material for notes, receipts and messages. In verses 7-15 Paul compares the gospel minister to a piece of Palestinian pottery. We have this treasure in jars of clay (v. 7). This treasure is the glorious good news about Christ (vv. 1-6). Jars of clay is actually "earthenware vessels" (ostrakinois skeuesin). The noun skeuosrefers to a vessel serving...
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...Accounting fraud is a fraud or irregularities occurring because of the interests of certain parties in a company. Accounting fraud also occurs due to protect the interests or reputation of the company to obscure the eyes of outsiders. This act is illegal and shows unethical behavior because it does not show the transparency and integrity of a company in presenting its financial statements in order to grab the attention of outsiders to invest in the company or to preserve the reputation of companies that seem stable. Accounting fraud also can be describe as intentional misrepresentation or alteration of accounting records regarding sales, revenues, expenses and other factors for a profit motive company such as inflating stock values, obtaining more favorable financing or avoiding debt obligations. Employees who commit accounting fraud at the request of their employers are subject to personal criminal prosecution. Therefore, we have carried out projects concerning fraud for which we have selected Silver Bird Group Berhad as object of our project. This project is aimed to gain a better understanding of how and why accounting fraud can happen in this company. As we get information about this company that Silver Bird Group Berhad involves in the financial statements fraud as stated by the Bursa Saham Malaysia in the press release dated 11 September 2013. Securities Commission Malaysia (SC) charged two former directors of Silver Bird Group Berhad (Silver Bird) because in year...
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...Ward 29 July 2015 “Ethics and Its Ties to Earnings Management” INTRODUCTION Many professionals and accounting researchers have raised the question -Is ethics directly linked to the practice of earnings management? Earnings management is defined by Beaudoin, Cianci, and Tsakumis (2012, p.507), as “the manipulation of revenues and/or expenses to obtain a desired financial reporting outcome.” He and Yang’s article offers that the definition of earnings management is “a process in which managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers” (He and Yang 2013). So either way one looks at it, earnings management is a form of deceit. In Shafer’s (2013, p.45) paper, the author defines ethical climate by referencing Victor and Cullen (1988) as, “the prevailing perceptions among employees of organizational practices and procedures that have ethical content.” More often than none, findings have shown that companies tend to engage in earnings management through management’s actions, and not just through accounting choices. Corporations tend to conduct earnings management to meet earnings forecasts, as well as, to decrease financing and tax costs. One side of the spectrum would argue that it is perfectly fine to manage earnings, as long as it is within the generally...
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...Managers engage in different ways to manage their earnings. They take on a specific pattern depending on the economic condition or their characteristic – that is, whether they are risk-averse or not. In the next few slides, I will describe four different patterns of earnings management: taking a bath, income minimization, income maximization, and income smoothing. Taking a Bath pattern can take place during period of organizational stress or when a company is undergoing major reorganization. In this pattern, managers feel that if they must report a loss, they might as well “clear the decks” and report a large one. They do so by writing-off assets in order to provide for future costs. Because of accrual reversal, this enhances the probability of future reported profits. The next pattern is Income Minimization. This is similar to Taking a Bath but it’s less extreme. Firms going through periods of high profitability usually take on such a pattern. Policies that suggest income minimization include rapid write-offs of capital and intangible assets and expensing A&P and research & development expenditures. It can also be noted that Canada’s progressive tax rate provides another incentive for this pattern. Looking at the other end of the spectrum, managers also manage their earnings upwards. This pattern is usually common in companies where managers are driven by bonuses. Another incentive to choose this pattern is to avoid debt covenant violation which I will explain in detail later...
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