Seminar_22_EarningsManagement(cont)

Financial Accounting Theory (5th Edition)

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Matt Steger Seminar 22 – Earnings Management (cont’d) In the second half of chapter 11, Scott provides us with the findings of several important studies that explored the questions surrounding earnings management. The two articles for this seminar explore some of the key implications of earnings management by showing how managed earning might be a good thing in certain cases and by also by discussing the dominant points of contention over the significance of earnings management. In his discussion on the “good” side of earning management in the second part of Chapter 11, Scott writes, “Frequently, agents obtain specialized information as part of their expertise, and this information can be prohibitively costly to communicate to the principal, that is, its communication can be blocked” (415). He then provides an analogy portraying a doctor and a patient to illustrate this point where the doctor holds specialized information that his/her patient could not understand and will sometimes act on that information without communicating it to the patient entirely. Scott then shows us that sometimes “earnings management can also be a device to reduce blockage” and
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Seminar_22_EarningsManagement(cont) - M att Steger Seminar...

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