Auditors and earnings management
Added on 2021-06-14
18 Pages4682 Words24 Views
Running head: EARNINGS MANAGEMENT AND AUDITORS RESPONSIBILITY INORGANIZATIONSEarnings Management and Auditors Responsibility in OrganizationsName of the University:Name of the Student:Authors Note:
1EARNINGS MANAGEMENT AND AUDITORS RESPONSIBILITY IN ORGANIZATIONSAbstractThe objective of this paper is to analyze the earnings management in organizations along withevaluating the techniques that can facilitate in dealing with the practices of earningsmanagement. It has been observed that the major issues related with the use of earningsmanagement is centered on the ways companies manage their earnings, the ways in whichearnings management is measured through implementation of GAAP which needs managementto make necessary judgments along with anticipations along with necessary earningsmanagement implications. There are several adverse consequences of poor earnings managementquality adopted by companies that can result in increased cost of capital due to decreased priceearnings ratios. The paper also revealed that the auditor has the responsibility of recognizingfraud within the financial statement audits of companies. They are also aware and control thefraudulent financial reporting that includes intentional misstatements or omissions of financialstatements disclosure in order to deceive the users of financial statements.
2EARNINGS MANAGEMENT AND AUDITORS RESPONSIBILITY IN ORGANIZATIONSTable of Contents1. Introduction......................................................................................................................32. Techniques Used in Earnings Management and its Related Limitations........................33. Auditor Initiatives in Dealing with Earnings Management Practices and CorporateCollapses..........................................................................................................................................64. Auditors Responsible for Business Collapse.................................................................105. Conclusion.....................................................................................................................12References..........................................................................................................................14
3EARNINGS MANAGEMENT AND AUDITORS RESPONSIBILITY IN ORGANIZATIONS1. IntroductionEarnings management can be defined as the planned timing for the expenses, revenue,losses as well as gains for earnings smoothening over a number of years. It might encompasspremature recognition of expenses or income along with deferral of the same in order tomanipulate the financial results of the company (Ali & Zhang, 2015). Hence, the treatment ofaccounts which reflects the higher reported income or even may present a positive side of theorganization in a legal way is termed as earnings management. Sometimes it is confused withmanipulation of accounts and is considered illegal but it actually is misinterpretation of thefinancial reports. Most of the companies use the accounting guidelines and principles to casttheir financial results in better light. The major issues related with the use of earnings management is centered on the wayscompanies manage their earnings, the ways in which earnings management is measured throughimplementation of GAAP which needs management to make necessary judgments along withanticipations along with necessary earnings management implications (Astami, Rusmin, Hartadi& Evans, 2017). The paper will also reveal that this implies that in the GAAP, choices can bedeemed as earnings management in case they are employed to cover the true economicperformance that bring back to the managerial intention of earnings management. 2. Techniques Used in Earnings Management and its Related LimitationsSeveral earnings management techniques are employed by the companies in order tomanage their earnings in a better manner. Such earnings management techniques are employedin order to enhance the performance of the organizations in the perception of the stakeholders
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