The Relation between the REM and AEM: Income Smoothing
Added on -2019-09-21
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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 Perspective1Summary In the topic i.e. the relation between the real earning management and the accounting earning management which is given by Souichi tells about the relationship between the real and accounting earning management to smooth the earnings. The author focuses on the discretional cash flow from operation in the case of real earning management and in the case of accounting earning management it focuses on discretional accruals. To examine the income smoothing activities the author uses the proxy variables of both the real as well as the accounting earning management (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 earning management and real earning management. The Accounting earning includes the GAAP i.e. generally accepted accounting principles, and this includes LIFO and FIFO method for the valuation of the inventory. The real earning includes the real decisions related to the investment and production as for example to reduce the R&D expenditure and the factors that are affecting the selling and administrative expenses. These both are the important tools to manage the earnings. After that, the author tells about the managers can use the variety of earning patterns in which the most important pattern is the income smoothing. This is most important strategy among 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 research that is conducted. The different author gives different suggestion regarding the income smoothing hypothesis and the ratio of debt and equity hypothesis where the author defines the
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