Quality of Earnings“Did you make your numbers today?” is a question asked often in both large and small businesses. Companies and employees are continually under pressure to “make the numbers”—that is, to have earnings that are in line with expectations. As a consequence it is not surprising that many companies practice earnings management. Earnings managementis the planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. The quality of earnings is greatly affected when a company manages earnings up or down to meet some targeted earnings number. A company that has a high quality of earningsprovides full and transparent information that will not confuse or mislead users of the financial statements. A company with questionable quality of earnings may mislead investors and creditors, who believe they are relying on relevant and reliable information. As a consequence, investors and creditors
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