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Earnings Management Hw

1. What is earnings management?
The companies use earnings management as a strategy by which they can easily control and manipulate their earnings to reach their pre-determined earning target.

2. Why do companies employ earnings management techniques?
Accountants cannot predict every business structure, every new and innovative transaction. Therefore, they build up principles that allow for flexibility so that they can adapt to changing circumstances. However, people make use of that flexibility. They employ earnings management techniques to shade financial unpredictability. Thus, the real results of the decisions of the management are veiled.

3. Describe 5 popular techniques used by companies that Levitt believes are illusions. Do you know of companies that have used these techniques?
5 popular techniques used by companies are: "big bath" restructuring charges, creative acquisition accounting, "cookie jar reserves," "immaterial" misapplications of accounting principles,......


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Approximate Word Count: 1019
Approximate Pages: 5 (250 words per double-spaced page)

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