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THE TROUBLE WITH EARNINGS MANAGEMENT

Strategic finance (Montvale, N.J.), 2015-12, Vol.97 (6), p.17

Copyright Institute of Management Accountants Dec 2015 ;ISSN: 1524-833X

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  • Title:
    THE TROUBLE WITH EARNINGS MANAGEMENT
  • Author: Verschoor, Curtis C
  • Subjects: Accounting ; Corporate profits ; Earnings management ; Earnings per share ; Executives ; Financial reporting ; Financial statements ; GAAP ; Professional ethics ; Safe harbor
  • Is Part Of: Strategic finance (Montvale, N.J.), 2015-12, Vol.97 (6), p.17
  • Description: In an attempt to eliminate fraud, securities laws in the US try to severely limit corporate management from promising a specific level of future earnings. US Code ยง77z-2, "Application of safe harbor for forward-looking statements," requires "meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement." Yet earnings guidance -- and managing earnings toward meeting that guidance -- are believed to be relatively common. A 2015 study, "The Misrepresentation of Earnings," found that CFOs believe 20% of publicly held companies intentionally distort earnings to misrepresent performance while adhering to US Generally Accepted Accounting Principles. When asked about private companies, the amount is closer to 30%. "A Survey of Investor Relations and Earnings Guidance," a 2015 research study published by IMA and the Financial Executives Research Foundation, surveyed accounting and finance executives to assess the incidence of activities associated with investor relations, earnings guidance, and earnings management within their companies. A causative link between earnings guidance and earnings management is less apparent.
  • Publisher: Montvale: Institute of Management Accountants
  • Language: English
  • Identifier: ISSN: 1524-833X
  • Source: ProQuest Central
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