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Judgment Case 4 - Judgment Case 4-3 Companies often are...

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Judgment Case 4-3 Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. Required: Is earnings management always intended to produce higher income? Explain No, not necessarily. According to “GAAP, managers have the power, to a limited degree, to manipulate reported company income. And the manipulation is not always for the direction of higher income.” This manipulation is said to be a “mask of permanent earnings.” (Spiceland, et al, 2011, p 175) Looking back we know that “earnings quality is used as a framework for more in-depth discussions of operating and non operating income” (Spiceland, et al, 2011, p 175). “Managers manipulate income by two methods. Income shifting is achieved by accelerating or delaying the recognition of revenues or expenses (Spiceland, et al, 2011, p 176).
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