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Managers use a variety of tools to manage earnings. The tools often involve the timing or structuring of operating, investing, or financing activities to influence reported earnings. For example, managers can influence reported earnings by 1) creating customer incentives to stimulate sales, 2) reducing expenditures on research and development, 3) timing the sale of fixed assets. However, it is generally very difficult to determine whether such actions are taken to manage earnings or if they are taken for sound business reasons. ... Additionally, manages also make many judgments and estimates when applying these methods, which also can affect earnings. For example, managers can influence earnings with their estimates about the useful lives and salvage values of fixed assets, the impairment of goodwill, the collectibles of accounts receivables, etc.
What pushes management teams to manipulate earnings? Why do firms manage earnings when there are costs associated with doing so? ... Further, earnings management can impair the perceived quality of a firm’s earnings.
Approximate Word count = 768
Approximate Pages = 3.1
(250 words per page double spaced)
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