Methods, Techniques and Motives of Earnings Management Free Essay Example, 2500 words

In other words, managers in modern organizations are not obliged to use earning management, as a tool for supporting their firm s strategies. Also, the actual motives of earning management are not always related to organizational growth. Another definition of earnings management is incorporated in the study of Bhattacharyya (2006). In the context of this definition, earnings management is characterized as the activity of managing earnings through accounting manipulation (Bhattacharyya 2006, p. The above definition highlights an important aspect of earnings management: accounting principles and rules intervene, either more or less, in the earnings management process (Bhattacharyya 2006). Still, the above fact cannot secure the credibility of the particular activity, as analytically described below. The methods used for the management of earnings are not standardized. Managers can choose among a series of techniques, according to their skills/ background and their motives. The potent ial methods for managing earnings are described by Ronen Yaari (2007). It is noted that when having to manage earnings managers can choose: a) to use one of the techniques accepted under GAAP (Ronen Yaari 2007, p. 31); reference can be made, as examples, to depreciation or revenue recognition policy (Ronen Yaari 2007, p. 31), b) to proceed to the alteration of their firm s existing standards (Ronen Yaari 2007, p. 31); c) to proceed to a judgement call (Ronen Yaari 2007, p. 31); the above initiative is taken only in the case that estimates are considered as necessary, according to a relevant rule of GAAP (Ronen Yaari 2007); d) the creation of two categories of earnings: earnings that tend to appear on a continuous basis and earnings that are just temporary (Ronen Yaari 2007). We will write a custom essay sample on Methods, Techniques and Motives of Earnings Management or any topic specifically for you Only $17.96 $11.86/page