Earning management occurs when managers use their judgment to alter financial statements either
mislead stakeholders or influence contractual outcomes (Healy, 1999). But (Etumudon, n.d) argues that
EM also includes managem
Waste Management Inc. (WM), the then largest waste hauler in the US, was sued by its investors for
its fraudulent accounting manipulations, which inflated $1.7 billion profits from 1991 to 1997. The
tragedy happened mainly
L8: Earning management and creative accounting
What are the main possible methods used for earnings management?
Is earnings management a bad thing? Is it a good thing?
Why might firms engage in earnings management?
How can earnin
Lecture 8: earnings management and creative accounting
Definition: Earnings management occurs when managers use judgment in financial reporting and
in structuring transactions to alter financial reports to either mislead some stakeholders about
Lec 9: Enhancing auditing and governance
Since last scandals
-IFRS and ISAs are modified
-CG codes are introduced and improved
-Legislative change, SOX and etc.
-regulation improved, e.g. UK profession acct bodies and trade associations
-some CG aspects i
The earning management in Satyam
Raju resignation letter. inflat/over stated.
1. inflated (non-existent) cash and bank balances of Rs.5040 cr (as against Rs. 5361 cr reflected
in the books)
2. an accrued interest of Rs. 376 cr which is non-existent
CG Theoretical Framework of CG:
Heugens and Otten
1. Organizational design
audit and remuneration committee whistle blowing
Independence.eg: Non executive directors > 50%
2. Ownership and Control
- ownership convergence
1. Section 302:
1). Relates to disclosure in SEC filings
2). CEOs and CFOs of US-listed companies personally certify in
annual and quarterly reports to the SEC that based on their
knowledge ( CEO CFO
there are no untrue statements or omissions
1. FR gives what information? Useful or misleading
Useful information from FR
True financial report should distinguish best performance firm from poor performance firm
and facilitate resources allocation of capital market.
Financial reporting information
Problem in CG of Satyam
Negligence of Board of Directors
Satyam has more than half of non-executive directors in Board, and most of them are
independent directors. In spite of vast background of boards, boards of directors failed to
perform their fiducia
Goal convergence: Goal congruence will arise when managers and shareholders share
the same objectives. More widely, considering CSR, companies and their stakeholders
share the same objectives.
Agency costs: Costs that arise when a principal hires
Introduction to corporate governance
Corporate governance is a set of processes, customs, policies, laws, and institutions affecting
the way a company is directed, administered or controlled. And also includes the
relationships among the many stakeholders
1. What are the merits and demerits of a stock versus a bank system of
The question can be answered by discussing the differences between a financial
system based on relationships versus one based on arms-length transactions.
A relationship bas