Facebook Pixel Code
x
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Methods, Techniques and Motives of Earnings Management

This is a preview of the 10-page document
Read full text

In other words, managers in modern organizations are not obliged to use earning management, as a tool for supporting their firm’ s strategies. Also, the actual motives of earning management are not always related to organizational growth. Another definition of earnings management is incorporated in the study of Bhattacharyya (2006). In the context of this definition, earnings management is characterized as the ‘ activity of managing earnings through accounting manipulation’ (Bhattacharyya 2006, p. The above definition highlights an important aspect of earnings management: accounting principles and rules intervene, either more or less, in the earnings management process (Bhattacharyya 2006).

Still, the above fact cannot secure the credibility of the particular activity, as analytically described below. The methods used for the management of earnings are not standardized. Managers can choose among a series of techniques, according to their skills/ background and their motives. The potential methods for managing earnings are described by Ronen & Yaari (2007). It is noted that when having to manage earnings managers can choose: a) to use one of the techniques ‘ accepted under GAAP’ (Ronen & Yaari 2007, p. 31); reference can be made, as examples, to depreciation or revenue recognition policy (Ronen & Yaari 2007, p. 31), b) to proceed to the alteration of their firm’ s existing standards (Ronen & Yaari 2007, p. 31); c) to proceed to ‘ a judgement call’ (Ronen & Yaari 2007, p. 31); the above initiative is taken only in the case that estimates are considered as necessary, according to a relevant rule of GAAP (Ronen & Yaari 2007); d) the creation of two categories of earnings: earnings that tend to appear on a continuous basis and earnings that are just temporary (Ronen & Yaari 2007).

Separating earnings can offer the following benefit: even if the relevant figures are included in a firm’ s financial reports it is possible that stakeholders will not identify any potential drawback, in regard to the firm’ s profitability (Ronen & Yaari 2007).

This is a preview of the 10-page document
Open full text
Close ✕
Tracy Smith Editor&Proofreader
Expert in: Finance & Accounting, Marketing, Macro & Microeconomics
Hire an Editor
Matt Hamilton Writer
Expert in: Finance & Accounting, Management, Human Resources
Hire a Writer
preview essay on Methods, Techniques and Motives of Earnings Management
WE CAN HELP TO FIND AN ESSAYDidn't find an essay?

Please type your essay title, choose your document type, enter your email and we send you essay samples

Contact Us