sep3 - prices up. Managers are also typically compensated...

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1 Friday, September 03, 2010: Homework Problems: 1. What is earnings management? Earnings management is when managers actively make estimation choices that mechanically alter the reported flows to net income (earnings). Some earnings management can be accomplished while still complying with GAAP or IFRS because both sets of standards allow for estimation choices. Extreme cases of earnings management can occur (which likely do not comply with GAAP or IFRS) at firms that intend to commit fraud (e.g., Enron, Crazy Eddie’s). 2. Why do company managers (the CEO, the CFO, etc.) have incentives to manage earnings? There is pressure to meet analysts’ earnings and revenue forecasts to keep share
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Unformatted text preview: prices up. Managers are also typically compensated as a direct function of reported earnings or of share price (which is a function of earnings). 3. What types of accounts can managers manipulate (and still remain compliant with GAAP, potentially)? As we will see soon in more detail, manipulation can occur where estimations are needed (i.e., where the true value is not known) and where changes in estimations flow directly to net income. Some examples include: allowance accounts, depreciation, fair valuing some items (particularly within IFRS) More to come on this in later classes (we will get specific) 2 3 4 5 6...
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sep3 - prices up. Managers are also typically compensated...

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