2011-09-12 - Lecture 1 - Earnings Management

2011-09-12 - Lecture 1 - Earnings Management - MGT322...

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Unformatted text preview: MGT322 MGT322 Lecture 1 Topic 0 Earnings Quality Feng Chen University of Toronto Fall 2011 1 2 Two broad ways of earnings management Several typical patterns of earnings management Motivations for earnings management Debt contract motivation Good and bad sides of earnings management Agenda for Lecture 1 3- The accounting choice or real actions taken by a manager, so as to achieve some specific reported earnings objective What is Earnings Management? 4- The company can manage the accrual items to achieve specific earning goal- But a manager who manages earnings upwards to an amount greater than can be sustained will find the reversal of these accruals in subsequent periods- Accruals Difference between company earnings and cashflows Ways of Earnings Management 5- Another way to manage earnings is by means of real activities , such as advertising, R&D, timing of purchases and disposals of capital assets, stuffing the channels, overproduction, etc.- Example: Delaying R&D costs for short term improvement of Earnings will have long term implications. Ways of Earnings Management Patterns of Earnings Management 6 Big Bath Income Minimization Income Maximization Income Smoothing 7 Big bath This can take place during periods of organizational...
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This note was uploaded on 03/14/2012 for the course ACCT 322 taught by Professor Chan during the Spring '12 term at University of Toronto- Toronto.

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2011-09-12 - Lecture 1 - Earnings Management - MGT322...

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