Earnings management

Earnings management, in accounting, is the act of intentionally influencing the process of financial reporting to obtain some private gain.[1] Earnings management involves the alteration of financial reports to mislead stakeholders about the organization's underlying performance, or to "influence contractual outcomes that depend on reported accounting numbers."[2]

Earnings management has a negative effect on earnings quality,[3] and may weaken the credibility of financial reporting.[4] Furthermore, in a 1998 speech Securities and Exchange Commission chairman Arthur Levitt called earnings management "widespread".[5] Despite its pervasiveness, the complexity of accounting rules can make earnings management difficult for individual investors to detect.[6]

  1. ^ Schipper, Katherine. 1989. “Commentary on Earnings Management.” Accounting Horizons (December): 91–102.
  2. ^ Healy, Paul M., and James Wong. Wahlen. 1999. “A Review of the Earnings Management Literature and Its Implications for Standard Setting.” Accounting Horizons 13 (4): 365–383.
  3. ^ Akers, Michael D.; Giacomino, Don E.; Bellovary, Jodi L. "Earnings Management and Its Implications: Educating the Accounting Profession". The CPA Journal. The New York State Society of CPAs. Retrieved 14 January 2014.
  4. ^ Munter, Paul (1999). "SEC Sharply Criticizes "Earnings Management" Accounting" (PDF). Archived from the original (PDF) on 5 September 2012. Retrieved 14 January 2014.
  5. ^ "Remarks by Chairman Arthur Levitt". SEC. Retrieved 14 January 2014.
  6. ^ Cite error: The named reference Investopedia What was invoked but never defined (see the help page).

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