Accounting Principles and Practices Report 2022

ACCOUNTING PRINCIPLES AND PRACTISES
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ACCOUNTING PRINCIPLES AND PRACTISES

ACCOUNTING PRINCIPLES AND PRACTISES
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Executive summary:
This report aims at discussing the earnings management, the role of the auditors in it and the
way the same could be reduced. The concept of earnings management is an old one in which
the company manipulates the sales revenue figures or the profit figures or the expense figures
in order to report profitability of the business operations. This is done by the management so
that bonus could be received by them in line with the increased profit.

ACCOUNTING PRINCIPLES AND PRACTISES
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Contents
Introduction:...............................................................................................................................4
Meaning:....................................................................................................................................4
Auditor’s role:............................................................................................................................6
Effect on audit procedures:........................................................................................................7
Means of reducing earnings management:.................................................................................8
Evidence of earnings management:...........................................................................................9
Conclusion:................................................................................................................................9
References:..............................................................................................................................11

ACCOUNTING PRINCIPLES AND PRACTISES
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Introduction:
Earnings management is the way through which the company is able to depict a better picture
of the company as compared to what exactly it is. This is done by deferring the expenses to
the next period, recording the revenue of the next period in current period etc. activities like
these are not legal (Management, 2019).
The manipulation of the earnings is something which is illegal today. Though the
management does manipulate the facts and the figures contained in the books of accounts but
it affects the people or the stakeholders that rely on those facts and the figures contained in
the financials for the purposes of making the decisions. These decisions include make or buy
decisions which are connected with the making or the buying of the products or whether to
make an investment into another company or not or to buy the machinery or plant etc or to
make any other capital investment. If the facts are wrong, then that may lead to bankruptcy of
the company (Xotels, 2019)
Meaning:
Due to an intense competition today, the companies are striving hard for the purposes of
reporting the cooked results instead of the actual results that would show the fair and the
accurate picture of the company. Hence the companies are now using earnings management
in which the selection of the GAAP methods would include the ones that would help in
depicting a good picture instead of the fair picture of the company. This includes the subtle
techniques such as the change in the reported earnings through the process of performance
timing. The management would want to reduce the expenses in the current period that may go
on to defer the scheduled routine equipment maintenance to the next month since the current
period has earned a lesser amount of profit and hence, if the company reports this expense in
the statement of profit and loss, then this amount would be lead to a more reduction in the