The Relation between the REM and AEM: Income Smoothing

Added on - 21 Sep 2019

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Running Head: The Relation between the REM and AEM: Income Smoothing PerspectiveSUMMARY ON THE RELATION BETWEENREAL EARNINGS MANAGEMENT ANDACCOUNTING EARNINGS MANAGEMENT:INCOME SMOOTHING PERSPECTIVE
The Relation between the REM and AEM: Income Smoothing Perspective1SummaryIn the topic i.e. the relation between the real earning management and the accounting earningmanagement which is given by Souichi tells about the relationship between the real andaccounting earning management to smooth the earnings. The author focuses on the discretionalcash flow from operation in the case of real earning management and in the case of accountingearning management it focuses on discretional accruals. To examine the income smoothingactivities the author uses the proxy variables of both the real as well as the accounting earningmanagement (Bartov, E., 1993).The purpose of this is to find the real and accounting earning which smooth the income in Japan.We classified the earnings management in two categories which involve accounting earningmanagement and real earning management. The Accounting earning includes the GAAP i.e.generally accepted accounting principles, and this includes LIFO and FIFO method for thevaluation of the inventory. The real earning includes the real decisions related to the investmentand production as for example to reduce the R&D expenditure and the factors that are affectingthe selling and administrative expenses. These both are the important tools to manage theearnings. After that, the author tells about the managers can use the variety of earning patterns inwhich the most important pattern is the income smoothing. This is most important strategyamong all the others.Then the author tells about the prior research and the hypothesis that it will conduct the research.This is to be done to identify the differences between the research as well as the prior researchthat is conducted. The different author gives different suggestion regarding the incomesmoothing hypothesis and the ratio of debt and equity hypothesis where the author defines the
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