Summary of Chapter 11
Chapter 11 deals with Earnings Management
What is earnings management?
“Earnings management is the use of accounting techniques to produce financial statements that
present an overly positive view of a company's business activities and financial position so in other
words earnings management is a method of manipulating financial records to improve the appearance
of the company's financial position.”(Tuovila,2019)
Companies use earnings management to present the appearance of consistent profits and to smooth
earnings' fluctuations.
One of the most popular ways to manipulate financial records is to use an accounting policy that
generates higher short-term earnings.
Earnings management can
be conducted through
accounng changes or esmates
(accrual-based
EM), but also through
managing transacons (real
transacons earnings
management).
, Discreonary accruals –
Accruals not explained by
economic fundamentals
(intuion behind
accruals models)
Note: accruals reverse –
managing earnings upward
now means lower earnings
later
Earnings management can
be conducted through
accounng changes or
esmates (accrual-based
EM), but also through
managing transacons (real
Chapter 11 deals with Earnings Management
What is earnings management?
“Earnings management is the use of accounting techniques to produce financial statements that
present an overly positive view of a company's business activities and financial position so in other
words earnings management is a method of manipulating financial records to improve the appearance
of the company's financial position.”(Tuovila,2019)
Companies use earnings management to present the appearance of consistent profits and to smooth
earnings' fluctuations.
One of the most popular ways to manipulate financial records is to use an accounting policy that
generates higher short-term earnings.
Earnings management can
be conducted through
accounng changes or esmates
(accrual-based
EM), but also through
managing transacons (real
transacons earnings
management).
, Discreonary accruals –
Accruals not explained by
economic fundamentals
(intuion behind
accruals models)
Note: accruals reverse –
managing earnings upward
now means lower earnings
later
Earnings management can
be conducted through
accounng changes or
esmates (accrual-based
EM), but also through
managing transacons (real
