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Detecting cosmetic earnings management using Benford's law

The CPA journal (1975), 2011-02, Vol.81 (2), p.32

COPYRIGHT 2011 New York State Society of Certified Public Accountants ;Copyright New York State Society of Certified Public Accountants Feb 2011 ;ISSN: 0732-8435

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  • Title:
    Detecting cosmetic earnings management using Benford's law
  • Author: Jordan, Charles E ; Clark, Stanley J
  • Subjects: Accounting ; Business ethics ; Depreciable assets ; Earnings management ; Financial management ; Financial reporting ; Financial statements ; Laws, regulations and rules ; Profitability ; Profits ; Safety and security measures ; Studies
  • Is Part Of: The CPA journal (1975), 2011-02, Vol.81 (2), p.32
  • Description: Earnings management represents deliberate actions by managers to bring about desired financial outcomes. To help accounting professionals become more knowledgeable about earnings management, this article describes an intriguing and long-standing form of earnings manipulation known as cosmetic earnings management (CEM). The article also explains a method of testing for the presence of CEM as well as results showing the change in the incidence of this form of earnings management following the enhanced scrutiny of financial reporting in recent years. The results shown in this article seem to suggest that CEM no longer presents a problem to the profession. Without doubt, CEM is not as widespread as it once was, at least not in the 2003-2006 time period examined. The findings for the general sample examined in this article do not necessarily mean CEM has been eliminated within particular industries, among clients of individual CPA firms, or among high risk clients.
  • Publisher: New York: New York State Society of Certified Public Accountants
  • Language: English
  • Identifier: ISSN: 0732-8435
  • Source: AUTh Library subscriptions: ProQuest Central
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