The document discusses earnings management, which refers to intentionally manipulating a company's earnings to match targets. Earnings are a key indicator of a company's performance and value. While some earnings management is legal and used as a business strategy, excessive manipulation can mislead investors. There are various techniques used for earnings management, such as shifting expenses between periods or overstating revenues. While earnings management may benefit companies in the short-term, lack of transparency damages stakeholder trust in the long-run.
Creative Accounting and Impact on Management Decision MakingWaqas Tariq
The study was conducted to appraise the impact of creative accounting on management decisions of selected companies listed in the Nigerian Stock Exchange. With the background, the main objective of the study includes the examination of the extent to which macro-manipulation of financial statement affects management decisions; to examine the extent to which macro-manipulation of financial statement affects share price performance; and to determine the impact of misreported assets and liabilities as well as making recommendations to help remedy some of the problems. The research method used was descriptive and the primary data collected were summarized and tabulated. These were picked in line with the hypothesis variables of the study so as to determine their validity. It was observed that the application of creativity in financial statement reporting significantly affects the decision of management to recapitalize the firm upward or dispose of it reserves. The study concluded that creative accounting through macro-manipulation of financial statements affects a firm’s price and capital market performance. In view of the study, the researcher recommended that the application of creative accounting on management decision should be to avoid misreporting of assets and liabilities in their financial report, and that management decision towards creative accounting should be geared towards the relative advantage principle and good corporate governance which encourage challenges to current ways of thinking and not manipulating for self interest.
Creative Accounting and Impact on Management Decision MakingWaqas Tariq
The study was conducted to appraise the impact of creative accounting on management decisions of selected companies listed in the Nigerian Stock Exchange. With the background, the main objective of the study includes the examination of the extent to which macro-manipulation of financial statement affects management decisions; to examine the extent to which macro-manipulation of financial statement affects share price performance; and to determine the impact of misreported assets and liabilities as well as making recommendations to help remedy some of the problems. The research method used was descriptive and the primary data collected were summarized and tabulated. These were picked in line with the hypothesis variables of the study so as to determine their validity. It was observed that the application of creativity in financial statement reporting significantly affects the decision of management to recapitalize the firm upward or dispose of it reserves. The study concluded that creative accounting through macro-manipulation of financial statements affects a firm’s price and capital market performance. In view of the study, the researcher recommended that the application of creative accounting on management decision should be to avoid misreporting of assets and liabilities in their financial report, and that management decision towards creative accounting should be geared towards the relative advantage principle and good corporate governance which encourage challenges to current ways of thinking and not manipulating for self interest.
The slippery slope is described as ‘playing the system’, ‘beating the system’, and fundamentally neglecting the laid down rules, regulation within the system for selfish reasons. This presentation revealed the justification, ethical or otherwise for creative accounting, aggressive earnings management and related concepts as it affects the professional judgement of fraud examiners. The role of fraud examiners is put to light in ensuring that the users of financial statements are not continued to be put in the dark with respect to the state of the concerned company. This presentation also explores both positive and negative side of Creative accounting and revealed the consequences of the same within the context of fraud examination and financial reporting structures. It is concluded that The use of aggressive accounting techniques may not necessarily be fraudulent. However, it may be the start of a slippery slope, where legitimate earnings management descends into earnings manipulation or fraudulent accounting. This presentation recommends that fraud examiners should take seriously the ACFE code of ethics in resolving the allegation of fraudulent activities as may also concern creative accounting by seeing the bigger picture.
This presentation gives us an insight about how creative accounting can be. But this creative forms may also sometimes lead to fraud. This presentation will tell you what legal actions are taken when such a crime is committed.
Module 1 -Intoduction to Securities and InvestmentLAKSHMI V
Meaning and concept of Securities and Investment, Speculation, Difference between speculation and Investment,Objectives of Investment, Process of Investment. Investment Avenues, Investment Constraints, Sources of Investment informan, Investment strategies under economic growth and inflation
The slippery slope is described as ‘playing the system’, ‘beating the system’, and fundamentally neglecting the laid down rules, regulation within the system for selfish reasons. This presentation revealed the justification, ethical or otherwise for creative accounting, aggressive earnings management and related concepts as it affects the professional judgement of fraud examiners. The role of fraud examiners is put to light in ensuring that the users of financial statements are not continued to be put in the dark with respect to the state of the concerned company. This presentation also explores both positive and negative side of Creative accounting and revealed the consequences of the same within the context of fraud examination and financial reporting structures. It is concluded that The use of aggressive accounting techniques may not necessarily be fraudulent. However, it may be the start of a slippery slope, where legitimate earnings management descends into earnings manipulation or fraudulent accounting. This presentation recommends that fraud examiners should take seriously the ACFE code of ethics in resolving the allegation of fraudulent activities as may also concern creative accounting by seeing the bigger picture.
This presentation gives us an insight about how creative accounting can be. But this creative forms may also sometimes lead to fraud. This presentation will tell you what legal actions are taken when such a crime is committed.
Module 1 -Intoduction to Securities and InvestmentLAKSHMI V
Meaning and concept of Securities and Investment, Speculation, Difference between speculation and Investment,Objectives of Investment, Process of Investment. Investment Avenues, Investment Constraints, Sources of Investment informan, Investment strategies under economic growth and inflation
Les étudients en médecine ne le savent pas, mais ils sont représentés et défendus au sein de leur faculté par des élus étudients. En effet si si ces facultés (ou unité de formation et de recherche -UFR) sont gérées au quotidien par leurs Doyens, elles sont dirigées par un conseil. Ce conseil d'UFR se réunissant tous les deux mois environ, débat évident sur le budget annuel de la faculté, mais également sur la place des enseignants ou encore les postes de praticiens hospitalo-universitaires. Des commissions attenantes à ce conseil peuvent être mises en place afin d'aborder des questions de pédagogie, de stages, de finances etc.
Au sein de ce conseil siègent des étudiants, élus pairs tous les deux ans. Ces jeunes élus ont une place importante: ils représentes jusqu'a 40% des voix du conseil, et ont donc un réel poids dans les décisons, pouvant ainsi faire basculer un vote. Mais surtout les élus étudiants sont une force de proposition: en effet ce sont eux qui peuvent initier la mise en place de projet incontournables ou innovants comme les tutorats pour les externes ou les évaluations des enseignants.
Ces ainsi qu'a Créteil ou à Nancy, les élus UFR ont permisl'ouverture de la B.U. médecine jusuqu'à 22 heures. On peut également citer la mise en place des stages chez le medcin généraliste à Rennes ou l'extension des terrains de stage à Créteil. On pourrait enfin évoquer les nombreux remaniements des enseignants bénéfiques pour les étudiants, mais la listes serait trop longue pour pouvoirs citer tous les projets et ainsi les honorer.
La narration transmédia pour une mise en récit du territoireUrban Expé
Comment la narration transmédia spatialisée permet-elle une mise en récit du territoire ?
- La narration transmédia
- La ville comme terrain de jeu
- La ville est média
- L'exposition est média...transmédia
- Exemples de narration transmédia autour du patrimoine et des musées
- La narration du territoire
- La narration transmédia spatialisée
- Exemples de narration transmédia spatailisée
Présentation du 12/07/13 par Nathalie Paquet à "La Com fait son Festival à Avignon"
Conférence d'Eric Viennot, Philippe Français et Nathalie Paquet organisée par le Cercle des Dircoms Méditerranée.
Respond to... Companies often try to keep accounting earnings .docxwilfredoa1
Respond to...
Companies often try to keep accounting earnings growing at a relatively steady pace in an effort to avoid large swings in earnings from period to period. They also try to manage earnings targets. Reflect on these practices and discuss the following in your discussion post.
Are these practices ethical?
According to Ortega & Grant (2003), “earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company to influence contractual outcomes” (p. 51). Because these practices are used to alter the financials of a firm from actuality, then, no, these practices are not ethical, however there are common practice and, in some circumstances, acceptable.
What are two tactics that a financial manager can use to manage earnings?
Financial managers at times will use certain tactics to manage earnings. Two tactics that financial managers use to manage earnings are the Big Bath technique and the cookie jar reserve. The big-bath technique consists of taking a one-time, large write-offs or restructuring charges against income in order to reduce assets to further lower future expenses (Hope & Wang, 2018). The use of the big bath method can affect a firms’ competitiveness as it is essentially reporting a loss, which can have negative results on stock prices. The other method is the cookie jar reserve occurs when a company saves money from successful years and draws from that money and applies it to bad years in order to bolster earnings reports (CPA Journal, 1999). The method is used as way to smooth income and appear financially better when in actuality the company is having a bad year.
What are the implications for cash flow and shareholder wealth?
Ultimately, financial manager’s job is to maximize profit, because of this conflict of interest may occur. According to Chalak & Mohammadnezhad (2012), “with respect to increase shareholder wealth, free cash flows are of importance because allow managers to seek growth opportunities which increase share value” (p. 430). Therefore, the use of the techniques in the regards to implications for cash flow and shareholder wealth can be detrimental due to unreliable and inaccurate information, which occurs from managers intentionally influencing actual financials.
Using the financial balance sheet as displayed in the text, provide an example of how purchasing an asset or issuing stocks or bonds could potentially impact earnings targets.
When purchasing an asset or issuing stocks earnings targets are impacted due the changes in cash flow. For instance, when purchasing assets, the cash accounts will decrease the purchase amount, while issuing stocks or bonds increases by the amount received for the purchased stocks. These actions can a company to miss or exceed its earnings targets by the amounts of cash flow coming in or going ou.
The Analysis of Earning management and Earning Response Coefficient: Empiric...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
What Are Financial Statements?
Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar but different set of financial statements.
8
Non-GAAPs Measures
Name:
Professor’s Name
Course Name:
Course/Registration No.:
Date:
Introduction/Purpose
Accounting and finance profession requires that the process or recording transaction and preparation of the financial statements be done with some standards that are generally outlined as GAAPs. The standards enables organizations, companies whether private or public and other institutions to be accurate and transparent in their preparation and recording of financial statements. In order to achieve transparency, accuracy and consistency in the predation of financial reports, GAAPs is used as the standard measure. GAAPs stand for generally accepted accounting principles. There is no universal standard that applies to all organizations in different geographical locations in the world. These standards normally differ from one country to the other. Generally accepted accounting principle is the bedrock for understanding of their financial performance of an institution whether public or private owned. GAAPs normally outlines the procedures and the scorecard for the preparation of financial reports and statements therefore when a particular company prepares its financial statements without employing the methodology outlined in GAAPs, then such a company is said to be using a Non-GAAP measure. Non-GAAP measure does not apply the standards stated as the generally accepted accounting principles. Non-GAAPs tries to explain the historical financial performance of a company and the projected and expected future performance of a particular company, the current financial position and the general cash flows.
A number of Non-GAAP measures that will be discussed herein include but not limited to EBITDA (Earnings before Interest and Tax, Depreciation and Amortization), Adjusted Earning, funds from operation (FFO), other cash earning (CE), free cash flows (FCF) and EBIT (Earnings before Interest and Tax). Other Non-GAAP measures include Net Operating Income (NOI), modified funds from operations (MFFO), Broad cash flow (BCF) and ROIC (Return on invested capital). Each of these non-GAAP measures have been explained below.
Earnings before Interest, Tax, Depreciation and Amortization is a type of Non-GAAP measure to determine the general operating performance of a company. Some of the merits of EBITDA include its ability to compare competitive firms in terms of their performance, it indicates a company’s efficiency and effectiveness regarding financial performance, gives the general outlook of business performance. EBITDA does not consider capital investments and other financial variables that may affect the financial position of the company. It only include expenses that are considered necessary in the day’s operation of the company. EBITDA gives an account of cash flows that might have been generated by the ongoing operations in the company. Some of the disadvantages of earnings before interest tax, depreciation and amortization include its f.
What influences working capital managementSachin Karpe
Applying an effective funds control system is an excellent way for many companies to improve their returns. Funds management ensures a company has sufficient proceeds to meet its short-term debt debts and operating expenses
The article focuses on the Return on Equity (ROE)as the benchmark .docxmattinsonjanel
The article focuses on the Return on Equity (ROE)as the benchmark for assessing a business’s financial health.
Do you agree with this approach? (Support your response with 2 - 4 examples of financially healthy companies.).
Additionally, this article presents a spreadsheet analysis for commission-based businesses. What approach would you implement for a manufacturer?
How would it differ for a service organization, such as a CPA firm, staffing firm, or consulting firm?
ommission-based organizations’
values are affected by factors that
are not typical of manufacturing or
other retail business entities. One such
example is an insurance agency, which
exemplifies three factors germane to a
commission-based business. First, an
agency acts as an intermediary by pro-
viding the service of arranging insur-
ance coverage between an insurer and
an insured party. Thus, one of the
agency’s most valuable assets is its
client list. Second, the agency has the
fiduciary responsibility of either collect-
ing or arranging for the payment of pre-
miums by the insured to the insurer.
Third, an agency business typically is
not capital intensive, and owners gener-
ally take most of the profits of the
agency as bonuses or salary.
Our purpose in this article is to show
how a simple spreadsheet model can be
used to demonstrate the impact of dif-
ferent operating and capital manage-
ment strategies on the financial perfor-
mance of a commission-based business
such as an insurance agency. The model
is easy to develop and understand and is
flexible enough to allow for numerous
strategies. Instructors can use the model
to isolate the impact of a single strategy
or measure the impact of a combination
of strategies on performance.
The objective of the manager of a fee-
based business is to coordinate the
resources available in such a way as to
maximize financial performance. Man-
agement must determine growth, operat-
ing expenses, investment opportunities,
cash management opportunities, and the
level of profit retention. All of these fac-
tors affect financial performance and will
be considered in the model.
A typical business has various mea-
sures of financial performance that are
used in evaluating its health. Although
various measures have been developed
for evaluation of the productivity and
profitability of a commission-based
business, in this article we focus on the
rate of return on equity (ROE). Owners
and managers affect the numerator of
ROE by controlling growth, operating
expenses, investment opportunities, and
cash management opportunities. Own-
ers and managers affect the denomina-
tor of ROE by determining the profit
retention rate and, thus, the equity posi-
tion of the business. Successful business
owners should strive to maximize ROE,
which serves as a proxy for maximizing
the value of a business.
The Model
The model is a spreadsheet model that
can be used for any commission-based
business, such as an insurance agency,
travel agency, fo ...
Response 1:
Part 1
Memo:
Understanding Similarities and Differences between Financial and Managerial Accounting
Attention
: Susan Thompson
Susan-
In an effort to get you up to speed on our expectations, I wanted to provide some details on the differences you can expect to see between managerial and financial accounting and provide you some examples from both areas.
Financial accounting is the backbone of the day-to-day functions of accounting. From payables, to receivables to collections, this area ensures all of the outstanding bills and debts are paid so the organization can operate. The details received from the day to day management of financial accounting are provided to stakeholders’, creditors, vendors and management to ensure the organization is being forthcoming and so management can use the data to further the position of the company(MUSE: Financial and Managerial Accounting). Reports provided within financial accounting include the following:
Income Statement
Statement of Owners Equity
Balance Sheet
Cash Flow Statement
Each of these documents is used by managerial accounting team members to help make decisions about the future of the organization.
Managerial accounting is optional. This is a team of managers who are trying to plan for future business and need to understand the ebbs and flows of the business itself and how any of the business segments or areas can function more productivity. One thing to note is that Financial Accounting is handled by external persons who try to ensure the strength of financial decisions whereas Managerial Accounting is managed by internal managers responsible for the success of the organizations. Financial Accounting Reporting for the IRS is mandatory and GAAP accounting rules must be adhered too. Managerial Accounting has no set rules nor are they bound to any oversight group and are not required to provide any sort of mandatory reporting.
Additional reports used to analyze the health of an organization are horizontal and vertical analyzes.
Horizontal analysis is where we take a series of reports year over year and try to determine what trends were in assets, equity, cash flow, etc. Using these reports allows the management team to better understand the business and what could be coming in the future. Vertical analysis is where we analyze financial statements based on entries for assets, accounts, liabilities and equities. We review each of these as a proportion of the total account and try to understand what led to any inconsistencies.
If you need any further clarification regarding these concepts, reporting or analysis, please reach out to me directly.
Thank You
Part 2
Attn: Board of Directors
MEMO
In an effort to help our team better understand how we can use our current and previous accounting information to help plan and control for future business, I have broken down details on four key financial reports we receive regularly. These reports include the income sta ...
B2B payments are rapidly changing. Find out the 5 key questions you need to be asking yourself to be sure you are mastering B2B payments today. Learn more at www.BlueSnap.com.
VAT Registration Outlined In UAE: Benefits and Requirementsuae taxgpt
Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
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Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
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The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
⭐ 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐝 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬:
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"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
The key differences between the MDR and IVDR in the EUAllensmith572606
In the European Union (EU), two significant regulations have been introduced to enhance the safety and effectiveness of medical devices – the In Vitro Diagnostic Regulation (IVDR) and the Medical Device Regulation (MDR).
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Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
2. The single most important item on a company‟s financial statement is their earnings.
Sometimes referred to as a company‟s net income or “bottom line”, earnings are the one
indicator as to how a company performed throughout the period and added value to its overall
well-being. Earnings are revenue minus with all the expenses the companies occur during the
current period. Earnings are also described as the gain archive by the company for the current
period. Outsiders especially investors and analysts look to company‟s earnings to determine the
attractiveness of a particular stock of a company.
Companies with poor earnings prediction will typically have lower share prices compare
to those with better prediction. The price of the stock are positively correlated with demand of
the stock. More demand will lead to higher stock price and the higher stock price of the
company, the better the company are. The combination of both, earnings and management give
means of profit manipulation that can only been done by people who have power to control and
managing the company.
Given the importance of a company‟s earnings, it is not surprising that the manner in
which a company‟s management is always very interested in how their earnings are reported.
Company executives are in a position to make decisions with how accounting choices are made
and how earnings are managed. Earnings management is not a new issue. It‟s been using by the
corporation since the old time before the technology such as computer even created yet. There
was many type of how earnings are manage or in other word, being manipulate in order to get
the right earnings at the right times (Chapman, 2009).
Managing a company‟s earnings is not an illegal activity and can be used as one of the
company‟s strategy to archive better future but there is a lot of pressure on company executives
3. to manage earnings in order to reach their full potential. In the case of earnings management, it‟s
been used as a strategy by the management of a company to intentionally manipulate the
company's earnings so that the figures match with what they want. For example, in order to gain
trust from the bank to obtain a loan, the management manipulate the company‟s earning to look
good even if the company are not. However, if it is for the purpose of tax, the earnings are
manage to look bad in order to reduce the amount of tax expenses that need to be paid for the
current year. Simply put, the practice of earnings management is carried out for the purpose of
income smoothing (Chapman, 2009). Therefore, rather than having years of exceptionally good
or bad earnings, companies will try to keep the figures relatively stable by adding and removing
cash from reserve accounts. It is one of the techniques of earnings management.
On the other side, earnings management is not favorable by all of the financial reporting
users except the management since they are the people who orchestrate it. For sure, being
cheated regarding the information that should be obtain are not the favorable things that by all
people. In other words, earnings management is also misleading all the users regarding the
company‟s earnings. Regarding the complexity of the preparation of accounting report, the
practices of earnings management are continuously being reviewed and implemented. It‟s also
difficult to determine whether the company is manipulating its earnings or not (Chapman, 2009).
This is because of highly confidential information of how a company compiles its financial
reports. Individuals that are typically aware of the methods used in earnings management are
only the individual who adopted the method, which is usually the chief executive officer or CEO
and chief financial officer or CFO.
4. As stated by the investor Warren Buffett, "Managers that always promise to "make the
numbers" will at some point is tempted to make up the numbers” (Chapman, 2009). The function
of auditor are supposedly to detecting such misused in order to protects shareholders interest but
based on several previous case of big corporate scandals, its show that how careless the auditor
even though some of well establish auditor to detect that misused or purposely not detected that
issues. Some examples of earnings management and also the practitioner whose misused this
technique that lead them to failure that been stated by Agrawal and Chadha (2005) are included
offensively recording revenues as done by Xerox, Bristol-Myers, recording uncollectible sales as
was done by Merck, not to mention the practice of hiding expenses as was done by WorldCom
and using special purpose vehicles to overly inflate income that Enron participated in.
There are many phrases or words can be describing earnings activities and no standard
that universally accepted for the definition of these terms. Some of those terms are income
smoothing, accounting hocus – pocus, financial statement management, the numbers game,
aggressive accounting, reengineering of income statement, juggling the books, creative
accounting, financial statement manipulation, accounting magic, borrowing income from the
future, banking income for the future, financial shenanigans, window dressing. Some the
earnings management is legal which is can be accepted worldwide due to the low level of
manipulation and some are illegal due to high level of manipulation and intention to trick the
stakeholders (Agrawal, Chadha, 2005). This form of earnings management is also called cooking
the books and is illegal.
The applications of earnings management are kept in using by all around the worlds even
though several corporate scandals which misused of earnings management arise. Agrawal and
5. Chadha (2005), mention that, reason for using earnings management are due to market
incentives, contracting incentives and regulatory incentives.
Market incentives are regarding to meet with analysts‟ expectations which are important
in order to keep the company name at the established position. The reason is to smooth earnings
time‟s series even when it‟s affected by periodic figure such as seasonal sales. It‟s not like the
company not good when it is not in seasonal period, but then, the sales will definitely boost when
it‟s come to seasonal. If the seasonal period is not even at the right time, therefore, management
of earnings is needed in order to smooth the earnings for the company.
Contracting incentive are include as managing earnings of which in order to avoid
violating loan agreement that are written in terms of accounting numbers. In order to gain faith
from the lender and to archive the optimal credit term, management of earnings is needed. Not
all the time the company account might look as good as it‟s expected and if it is not, doesn‟t
simply mean that the company is in the bad position. Other than that, it‟s also managing earnings
to maximize earnings based management compensation (Vadiei Nowghabi & Anbarani, 2012)..
Regulatory incentiveshave been in practice in order to avoid industry regulations such as
to reduce the risk of political exposure and also to take advantage of certain governmental
benefits such as subsidy.Earnings management is not specifically stated for certain types or
techniques only. There are several types of earnings management and techniques that can be
used by a company through their operations. One of the very popular techniques of earnings
management is called “Cookie Jar”. This technique is function such as save some revenue in a
good year as a backup for losses that might incurred in the bad years. It‟s all depending on the
situation and stability of the company during the years. If the performance of the company is
6. better, therefore the expenses can be recognizes during the year but somehow, if it is not a good
year, the expenses can be recognizes next period to ensure the performance of company is goods.
Other popular techniques is also been called big bath. This technique or strategy is to
make bad income statement look even worst. This technique is a technique that used by blame
the previous manager that already sign out as to ensure the company performance for next year
are booms. This type of technique is used by the new manager which is appointed before the end
of the period. The new manager put blame to the previous manager by incurred as many
expenses as they can write off to ensure that next year, company can even perform better than
this year.
Capitalization practice is also other type of earnings management. This type of earnings
management is used to manipulating intangible assets such as research and development. Cost to
capitalize research and development are very subjective and only based on judgment. A company
might have possibility to allocate more expenses to the research and development project to
reduce current operating expenses. Therefore the expenses might only amortize through the life
of the assets and it‟s usually only a small portion.
There are also other types of earnings management that can be applied by all the manager
of the company to ensure the safeguard of the company‟s income. Some earnings management
are used in merger and acquisition, some are used in recognition of revenue, materiality concept
that been misapplied, reserve that been charge one time and also other earnings management
types(Vadiei Nowghabi & Anbarani, 2012)..
7. Some earnings management is done for the benefit of all stakeholder and some are done
for their personal benefit. The bad side of earnings management can also been called as fraud as
the intention is not to manipulate figure for the whole benefit but for their own benefit. The
controllers of earnings management are depending on the management party of the company and
how they predict and forecast the future of the company to ensure the optimal return is able to
archive. Management especially manager have a better knowledge regarding to the company
future compare to others. That‟s the reason of why, earnings management are still allowed even
though this benefits are always been misused as the way of cheated stakeholders and most of all,
for personal benefit (Vadiei Nowghabi & Anbarani, 2012).
There were several scandals that involve manipulation or earnings management that
involve several cases that affected not only that country but also all around the world. The most
influence scandals in the history of corporation are the collapsing of Enron in2001. Enron have a
very big influence to the corporate world that also evolves the way of how the corporate
governance are maintained and implement. The ethical issues of auditor are also in question were
still; even Enron was audited by one of the biggest audit firm which called Arthur Anderson.
One of the most important argument that been brought up are the issues of why earnings
management are still allowed even if it‟s been misused by several parties. Even thought, before
the scandals exposes, Enron maintain their goodwill by winning several awards regarding their
good corporate governance.
Enron Corporation was born in the middle of a recession in 1985, when Kenneth Lay,
CEO of Houston Gas Company, engineered a merger with Internorth Inc. The new company,
which reported a first year loss of $14 million, consisted of $12.1 billion in assets, 15,000
8. employees, the nation‟s second-largest pipeline network, and a towering mountain of debt. Enron
was a typical natural gas firm with all the traditional trappings of a highly leveraged, “old
economy” firm competing in the regulated energy economy. Teetering on the verge of
bankruptcy in its early years, Enron had to fight off a hostile takeover attempt. It also incurred
embarrassing losses on oil futures, which its traders in New York covered up in their reports to
the Houston headquarters. Its old economy strategy did not excite the stock market. This would
change dramatically, however, during the 1990s, when Jeffrey Skilling replaced Richard Kinder
as the CEO (Kadlec, 2001).
With the appointment of Skilling as CEO, Enron‟s culture would begin a radical
transformation. By 2000 it had become “the star of the New Economy,” emerging as a paragon
of the intellectual capital company with an enviable array of intangible resources, including
political connections, a sophisticated organizational structure, a highly skilled workforce of
sophisticated financial instrument traders, a state-of-the-art information system and expert
accounting knowledge. In 1999, Enron was named by Fortune as “America‟s Most Innovative
Company,” with business people and academics referring to Skilling – “The #1 CEO in the
USA” – proselytized at technology and leadership conferences across the United States about
how Enron was not only embracing innovative theories of business but also making a lot of
money doing so (Morley, 2009).
How fraud occurs within organizations can be understood by examining the elements that
comprise such actions. At an individual level, SAS No. 99 (Consideration of Fraud in a Financial
Statement Audit) issued by the Auditing Standards Board indicates that the occupational fraud
triangle comprises three conditions that are generally present when a fraud occurs. These
9. conditions include an incentive or pressure that provides a reason to commit fraud (personal
financial problems or unrealistic performance goals), an opportunity for fraud to be perpetrated
(weaknesses in the internal controls), and an attitude that enables the individual to rationalize the
fraud (AICPA, 2002). While the fraud triangle focuses on individual-level constructs of fraud,
such as localized instances of cash or other asset appropriation by employees, the Enron example
highlights fraud at the organizational level as well as systemic organization-wide fraud and
corruption (Kadlec, 2001).
Management controls refer to the tools that seek to elicit behavior that achieves the
strategic objectives of an organization, such as budgets, performance measures, standard
operating procedures and performance-based remuneration and incentives. While Enron‟s
demise has been portrayed as resulting from a few unscrupulous rogues or „bad apples” (the
phrase used by President Bush) acting in the absence of formal management controls, Enron
featured all of the trappings of proper management control, including a formal code of ethics, an
elaborate performance review and bonus regime, a Risk Assessment and Control group (RAC), a
Big-5 auditor, and conventional powers of boards and related committees. This control
infrastructure was widely lauded right up until the demise of the company (Morley, 2009).The
three core pillars of Enron‟s management control system were the risk assessment and control
group, Enron‟s performance review system and its code of ethics.
Risk Assessment and Control Group: An integral part of Enron‟s management control
system was the Risk Assessment and Control group or RAC. RAC was responsible for approving
all trading deals and managing Enron‟s overall risk. Every deal put together by a business unit
had to be described in a Deal Approval Sheet, which was independently assessed by RAC
10. analysts. Deals required various levels of approval from numerous departments, including
approval from the most senior levels, even from the board of directors (Morley, 2009).
Enron‟s Performance Review System: Another vital link in Enron‟s management controls
was the Peer Review Committee or PRC system. The intention of the PRC system was to align
employee action with the company‟s strategic objectives, retaining and rewarding superior
performers on a fair and consistent basis. Under the PRC system, every six months each
employee received a formal performance review, based on formal feedback categories including
revenue generation, and was assigned a final mark from one to five. Feedback came from various
sources including the employee‟s boss, as well as from five co-workers, superiors or
subordinates that the employee selected. The bottom 15 percent, no matter how good they were,
received a “5” which automatically meant redeployment to “Siberia,” a special area where they
had two weeks to try to find another job at Enron. If they did not – and most did not – it was “out
the door.” (Morley, 2009)
Code of Ethics: Enron‟s code served as a behavioral control intended to prohibit a range
of unethical behaviors. The code stressed the following four key principles: communication,
respect, integrity and excellence, and included phrases such as “we treat others as we would like
to be treated ourselves”, “we do not tolerate abusive or disrespectful treatment” and “we work
with customers and prospects openly, honestly and sincerely”(Kadlec, 2001).
What Enron clearly demonstrates is that once employees align themselves with a
particular corporate culture – and invest heavy commitment in organizational routines and the
wisdom of leaders – they are liable to lose their original sense of identity, and tolerate and
rationalize ethical lapses that they would have previously deplored. Once a new and possibly
11. corrosive value system emerges, employees are rendered vulnerable to manipulation by
organizational leaders to whom they have entrusted many of their vital interests. The Enron
demise, then, points to numerous risks associated with degenerate cultures: the risk that a culture
motivating and rewarding creative entrepreneurial deal making may provide strong incentives to
take additional risks, thereby pushing legal and ethical boundaries; resistance to bad news creates
an important pressure point of culture; and internal competition for bonuses and promotion can
lead to private information and gambles to bolster short-term performance. At Enron, these risks
ultimately subverted the company‟s elaborate web of controls (Kadlec, 2001).
Enron offers a number of important insights for managers. Firstly, it underlines the vital
role of top management leadership in fostering organizational culture. Secondly, within
organizations, the impact of culture and leadership on even most the sophisticated management
control system must not be overlooked or minimized. It is often too easy to consider cultural and
management control systems separately, with cultural being a soft issue and management
controls a hard one.
Lastly, the Enron scandal stresses the importance for management to not abandoning
professional integrity. Perhaps, the most important lesson for managers to take away is to use
personal cultural capital to find a working environment that matches one‟s personal values and
principles. Enron should serve as a wake-up call for managers in all organizations.Other than
Enron, WorldCom are also one of the big corporate scandals that lead to their collapsing that
lead to more study and argument on the use of earnings management as one of company strategy
or manipulation.
12. WorldCom, the number two long-distance telephone provider, announced $3.8 billion in
improperly booked expenses for 2001 and 2002. And in August 2002, the company disclosed an
additional $3.3 billion in accounting errors. As a result, the company will be forced to restate
earnings for 2000 as well (Simons, 2002).
The fraud perpetrated at WorldCom did not take place at the lower levels of the organization.
When invoices were paid, they were properly coded to an operating expense account. The
Arthur Andersen staff auditor tracing an invoice through the accounts payable system would not
find this fraud. Instead, huge amounts were reclassified by upper management as capital
expenditures. For example, $500 million in undocumented computer expenses were logged as a
capital expenditure. In addition, line costs were not expensed as required by Generally Accepted
Accounting Principles (GAAP).
Audit authorities say that WorldCom‟s fraud was so basic it should have been obvious to
the firm‟s external auditors, Arthur Andersen. Expenses disguised as capital expenditures are
one of the first things an auditor would examine. Evidence was produced in the court case
against the public accounting firm that Andersen did not verify WorldCom‟s treatment of line
costs. Rather, it relied on management‟s representations. The U.S. District Court held that
Andersen would have uncovered the fraud if it had conducted the required review before issuing
its audit opinion. The Court held that the Andersen audit opinions included in WorldCom‟s
year-end financial statements materially misrepresented the company‟s financial condition
(Simons, 2002).
It would take three internal auditors to uncover the fraud. The team of internal auditors
soon stumbled onto the issue of capital expenditures. They discovered that $2 billion that the
13. company said in public disclosures had been spent on capital expenditures during the first three
quarters of 2001 had never been authorized for capital spending. Concerned that CFO Sullivan
might try to cover up the fraud, Ms. Cooper and Mr. Smith met with Mr. Bobbitt, the head of
WorldCom‟s audit committee. The audit committee then took steps to remove both Sullivan and
Myers. Mr. Sullivan was fired and Mr. Myers resigned. And the next evening, WorldCom
announced that it had inflated profits by $3.8 billion over the previous five quarters. WorldCom
has since filed for bankruptcy. With $107 billion in assets, WorldCom‟s bankruptcy is the
largest in U.S. history, larger than even that of Enron Corporation (Simons, 2002).
The nonprofit industry is not immune to earnings management or nor does it have any
shortage in pressure to perform. Nonprofit colleges and universities have increasingly changed to
using performance-based compensation that encourages enrollment and admissions offices to
entice enrollees in an effort to increase enrollment numbers. Marty Mickey, V.P. for Financial
Services at National-Louis University has noted that he has seen a marked increase in the amount
of incentives offered to the enrollment representatives of nonprofit universitiesin order to remain
competitive which in turn results in them acting more like the enrollment offices of for-profit
universities. Lori Sundberg, the Controller and Associate Vice President of Budget and Planning
for Lake Forest College notes that earnings management in non-profit, higher education can
happen but is rare. She states that the field of higher education prides itself on transparency and
noted how she will collaborate with colleagues at other colleges about the results of their audits
and how other schools handle similar issues. Ms. Sundberg‟s comments were echoed by Doris
Dumas, Associated Controller and Director of Payroll at Lake Forest College. Doris stated that
when faced with a reporting issue, she will often turn to her counterpart at another school for
guidance.
14. Earnings management are only become useful when the management able to fixed it
afterward or only done it if the result are more certain as one way of to ensure the operation and
earnings are smooth. This is because only the management has the best knowledge regarding
company operation. To let them manipulate the earnings are good in other view because the
reaction of the investor regarding the value of the company are very sensitive. Corporate
scandals around the world leads to better review and application of how to derive business more
properly and transparently. The biggest case that gives impact on the world‟s corporate culture
such as Enron leads to change in several standards accepted around the world.
15. References
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Law and Economics, XLVIII, 371-406. Retrieved from
https://www.bama.ua.edu/~aagrawal/restate.pdf
AICPA. (2002, December). Summary of sasno. 99. Retrieved from
http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/FraudPreventionDe
tectionResponse/Pages/Summary of SAS No.aspx
Caro, M.E, Santora, J. C., & Sarros, J. C. (2007, Autumn). Succession in nonprofit organizations;
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Chapman, C. (2009). The effects of real earnings management on the firm: Its competitors and
subsequent reporting periods. (Doctoral dissertation, Northwestern University)Retrieved
from www.kellogg.northwestern.edu/accounting/papers/Chapman.pdf
Kadlec, D. (2001). Power failure. Time Magazine, Retrieved from
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Simons, D. (2002, July 08). Worldcom's convincing lies.Forbes, Retrieved from
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16. Vadiei Nowghabi, M. & Anbarani, S. (2012, June). Survey some of the factors influencing
ethical judgments of the earning management. International Journal of Accounting and
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