Economic Effect of Tightening Accounting Standards to Restrict

Added on - Sep 2019

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Running Head: Economic Effect of Tightening Accounting Standards to Restrict Earnings ManagementEconomic effect of TighteningAccounting Standards to RestrictEarnings Management
Economic Effect of Tightening Accounting Standards to Restrict Earnings Management1SummaryThe author Ralf Ewert describe the topic "Economic effect of Tightening Accounting Standardsto Restrict Earnings Management" in which it explains that the tightening accounting standardshould decrease the earning management and this will provide the relevant information about thecapital market. The author distinguishes the real and accounting earning management thatassumes a standard setter which could influence the earning of accounting management bytightening the standards. (Ewert, R, et al., 2005)The author describes that the accounting standards setter which usually perceives the earningmanagement as undesirable and the attempt are made that will reduce the earnings managementby contraction the accounting standards. One of the authorSchipper tells about the tighteningaccounting standards which might lead to substitution effect which results in decline theaccounting earning management by which it will increase the real earning management.(Schipper. K, 2003).The author provides the result in which he tells about the contraction of accounting standardswhich will increase the quality of earnings, which are measuring by the measured by theinconsistency of the reported earnings and the association among the market price reaction andthe reported earnings.After that Ralf Ewert tells about the equilibrium model where he found that the earning qualityincrease with tight standards but there are several consequences which might affect this type ofbenefit. It involves different situation as Firstly; the manager will increase the costly retainedearnings management as the advanced earning quality might increase the marginal benefits ofreal earning management. Secondly, the tighter standards will increase the expected accounting
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