Schäffer et al., 2012). There are two methods which are Income Smoothing and Big Bath. “Income Smoothing involves taking steps to reduce the good years and defer them for use during the business down-turn years” (Gin Chong, 2006). In comparison, Big Bath manipulation in the financial statistics indicates a great fluctuation. However, Income Smoothing is more ethical in accounting practice than Big Bath due to the reasons compared below. Income Smoothing has been applied in financial accounting because
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earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window-dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques
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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
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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 write-off or write-down certain assets from their balance sheets in a single year. The write-off will help remove or reduce the asset from the financial books and results in lower net income for that year. 2) Income Minimization 3) Income Maximization 4) Income Smoothing Motivations
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|Topic in Mastery of the |Chapter 3 - Building Your |Chapter 4 – Brain Teasers: Using|Chapter 5 – Cases to Accompany | |Financial Accounting Research |Business Vocabulary: Defining |FARS to Untangle the Mystery |FARS [Related Assignments at End| |System (FARS) Through Cases 2nd |Terms and Solving Problems |[See Introduction and Example |of Cases] | |Edition by Wallace [Chapter 1 |Through FARS [See Introduction |pp. 4-1 to 4-7]
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ENRON: A CASE STUDY Q.1) Give the definition of earnings management. Discuss in what instances is earnings management acceptable and in what instances is it not acceptable? Earnings management is the process by which management can potentially manipulate the financial statements to represent what they wish to have happened during the period rather than what actually happened. Reasons why management may want to manage earnings include both internal and external pressures. Perhaps the most important
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pressure has arisen due to their interest rate increases in association with their high reported earnings. As accountants, we are responsible for preparing financial statements and “calculating” the profit figures. In your opinion, do you think the big banks are managing their reported earnings to show lesser profits than what they are actually earning (i.e. using earnings management techniques)? You are required, and must, read and incorporate academic journal articles and other relevant materials
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legal separation). All profits and losses belong to owner, report income on tax returns. Business ends if owner dies, can sell it. Easy and inexpensive to operate. No reporting requirements. Partnership simple to establish, shared control, broader skills and resources Two or more owner-managers. Want a formal agreement covering $ contributions, workload, withdrawals, decision-making. Each partner’s net income reported on his or her personal tax form. No tax advantage. General
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these circumstances will last. 3 Field of Research: Accounting. Keywords: Cosmetic Accounting, Accountants. External Auditor, Internal Auditor, 1. Introduction Creative accounting is referred to also as income smoothing, earnings management, earnings smoothing, financial engineering and cosmetic accounting. The preferred term in the USA, and consequently in most of the literature on the subject is „earnings management‟, but in Europe the preferred term is „creative accounting‟ and
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these circumstances will last. 3 Field of Research: Accounting. Keywords: Cosmetic Accounting, Accountants. External Auditor, Internal Auditor, 1. Introduction Creative accounting is referred to also as income smoothing, earnings management, earnings smoothing, financial engineering and cosmetic accounting. The preferred term in the USA, and consequently in most of the literature on the subject is „earnings management‟, but in Europe the preferred term is „creative accounting‟ and
Words: 5130 - Pages: 21
