*NURSING > A-Level Question Paper > Detecting Earnings Management 1e Gary Giroux (Test Bank). (All)

Detecting Earnings Management 1e Gary Giroux (Test Bank).

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The objective of financial accounting information is to explain financial and economic reality, including both financial performance and financial position of an entity or company. The Chief Financi... al Officer (CFO), often in collaboration with the CEO, develops ‘perspectives’ on what this economic reality is and how it should be reported. Invariably, this invites earnings management of all sorts. Earnings management includes the whole spectrum from conservative accounting through to moderate accounting, aggressive accounting, and plain fraud involving a wide range for faulty and clearly indefensible accounting judgments and choices. Earnings management reflects the given financial reporting incentives of management. Earnings management is not new to the world. Even in biblical days, various forms of fraudulent financial reporting have been documented as in the case of Ananias and Sapphira (Acts 5:1-10 (NIV)). It is therefore not surprising that in this modern world of extreme greed and conflict of interests, various parties that owe duty to account have resorted to many dubious ways to manipulate financial reports so as to advance their personal interests at the expense of all other legitimate stakeholders. The accounting profession and the financial regulatory bodies all over the world have been engaged in rule making and standard setting designed to purify the public disclosure and reporting system - especially financial reporting in an environment of agency relationships. Despite the efforts by these bodies, the world is full of instances of an increasingly questionable financial reporting. Many entities resort to what is variously called or referred to as: earnings management, creative accounting, cooking the books or falsify the financial statements. Earnings management denies investors and analysts the right information for their investment decision-making to determine the attractiveness or otherwise of their investments. Management, at times with the open support or prodding of the board of directors, deliberately manipulate earnings so that the accounting income numbers match a predetermined target or expectations. [Show More]

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