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Earnings Management Effects on Company

   

Added on  2021-06-14

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Running head: EARNINGS MANAGEMENT EFFECT ON COMPANIESEarnings Management Effect on Companies Name of the University:Name of the Student:Authors Note:

EARNINGS MANAGEMENT EFFECT ON COMPANIES1AbstractThe objective of the paper is to analyze the impact of earnings management on companies. Thepaper revealed that as the market becomes more competitive, sometimes the companies tent toeliminate their certain operation which is not performing well by naming it restructuring of theentity. As per the GAAP, it allows the manager to charge the cost of the change against thecompany’s income. It is against the company’s reputation in the market as it can be seen asuncompetitive but if the same is taken in positive way by the shareholders could also boost itsshare prices. It is a simple way of putting the losses occurred during the restricting process incurrent fiscal report and save the future reports from such losses and expenses. The paper alsorevealed that the main reason of managing the earnings lies with being more predictable in thefuture while walloping the volatility.

EARNINGS MANAGEMENT EFFECT ON COMPANIES2Table of Contents1. Introduction......................................................................................................................32. Issues causing earnings management and associated techniques....................................33. Auditors Approach in Dealing with OrganizationFailure with Use of EarningsManagement....................................................................................................................................64. Auditors are Accountable for Company Collapse.........................................................105. Conclusion.....................................................................................................................12References..........................................................................................................................13

EARNINGS MANAGEMENT EFFECT ON COMPANIES31. IntroductionThe profitability or earnings of the company is regarded as the most significant part ofthe company’s financial statement. It shows how the company is involved with the with its valuemaximization activity. The primary factor which reflects the company’s health is its earningswhich is also positively proportional to its value and also gains confidence of the shareholders.Therefore, reflecting the financial reports in positive light is the most imperative function of themanagement of a certain company (Aris et al., 2015). The management of a particular company while carrying out the accounting process toderive the financial reports also calculates the future estimates. Here, the accounting standardprovides various process to record a transaction and the managers can choose one of them.However, the outcome of the report is totally dependent on the process chosen. However,sometimes the managers try to present their reports in the most positive way possible byoverstating their earnings; this practice is known as earnings management (Bessis, 2015). Thispractice is generally not encouraged across the globe as it is seen to deceive the stakeholders.Hence, there are techniques of managing ones’ earnings and standards followed to counter thesame, which will be discussed later. 2. Issues causing earnings management and associated techniquesEarning Management is an attempt of reflecting the better side of the company byoverstating the earnings of the company to soothe the future journey of the entity using loopholesin accounting techniques (Beuselinck&Deloof, 2014). It is generally considered as manipulationof financial statements but is actually using the deficits of accounting policies. The main reason

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