Earnings Management and Its Implications

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Earnings Management and Its Implications
Educating the Accounting Profession By Michael D. Akers, Don E. Giacomino, and Jodi L. Bellovary

August 2007 Issue

AUGUST 2007 - In the wake of continuing, highly publicized E-mail Story financial frauds and failures, the accounting profession has placed renewed emphasis on issues related to earnings Print Story management and earnings quality. The SEC and the public are demanding greater assurance about the quality of earnings. Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, which was Enlarge Cover issued in December 1999 in response to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) report, illustrates the Features importance of earnings to the SEC.

Sunbeam & the ‗Iron Cur

In the August 1990 Management Accounting, William J. Bruns, Jr., and Kenneth A. Merchant reported the results of their survey of the readership of the Harvard Funding OPEB Liabilitie Business Review (HBR). That survey described 13 earnings-management situations that the authors had directly or indirectly observed, and asked HBR readers to rate Rebuilding FASB's Con the acceptability of those practices. Characterizing the results as ―frightening,‖ they Framework observed the following:
Education's

Respons

It seems that if a practice is not explicitly prohibited or is only a slight deviation Earnings Management from rules, it is an ethical practice regardless of who might be affected either by the practice or the information that flows from it. This means that anyone who uses More This Issue | Past Iss information on short-term earnings is vulnerable to misinterpretation, manipulation, or deliberate deception. We have no doubt that short-term earnings are being managed in many, if not all companies. Some of these earnings-management practices can be properly labeled as immoral and unethical. Prior to the Bruns and Merchant study, researchers and accounting professionals paid

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