Earnings Management
What is Earnings Management?
Earnings management refers to the use of accounting techniques or practices to manipulate a company's reported financial results in order to meet certain financial targets or objectives. This can involve manipulating the timing of revenue and expense recognition, selecting certain accounting methods or assumptions, or using other techniques to alter the financial statements in a way that is not necessarily in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
Earnings management can be motivated by a variety of factors, including the desire to meet certain financial targets or objectives, such as earnings per share or return on investment, or to influence the stock price or credit rating of the company. It can also be motivated by the desire to meet the expectations of analysts or investors or to avoid violating debt covenants or other financial agreements.
While earnings management is not necessarily illegal, it can be considered unethical and can have negative consequences for a company and its stakeholders. For example, it can lead to financial statements that are misleading or inaccurate, which can harm the credibility and trust of the company. It can also create financial risks for the company, as it may be difficult to sustain the manipulated financial results over the long term.
Overall, earnings management refers to the use of accounting techniques or practices to manipulate a company's financial results in order to meet certain targets or objectives, and it can have negative consequences for the company and its stakeholders.
See Also