1.What are the pressures that lead executives and managers to “cook the books ” * Pressures from investors ……they want to see that the company/business is growing * Attract new investors ….for the business to grow * Personal reasons …greed and wanting more * Pressure form the big boss * Brand of the company … the business has been known to be a big brang * Slow/decline in the industry
1. What is the boundary between earning management and fraudulent reporting ?
Fraudulent reporting is a form of aggressiveWhen a company is in a down turn in business |
Earnings management
"Earnings management" occurs when 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 a company or influence contractual outcomes that depend on reported accounting numbers.[3]
Earnings management usually involves the artificial increase (or decrease) of revenues, profits, or earnings per share figures through aggressive accounting tactics.
Management wishing to show earnings at a certain level or following a certain pattern seek loopholes in financial reporting standards that allow them to adjust the numbers as far as is practicable to achieve their desired aim or to satisfy projections by financial analysts. These adjustments amount to fraudulent financial reporting when they fall 'outside the bounds of acceptable accounting practice'. Drivers for such behaviour include market expectations, personal realisation of a bonus, and maintenance of position within a market sector. In most cases conformance to acceptable accounting practices is a matter of personal integrity. Aggressive earnings management becomes more probable when a company is affected by a downturn in business.
Earnings management is seen as a pressing issue
