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Earnings Management: The Continuum from Legitimacy to Fraud
Finance & Accounting
Pages 5 (1255 words)
Earnings Management: The Continuum from Legitimacy to Fraud Overview The financial statements provide adequate and important information in relation to performances as well as financial securities of a company. In the present business scenario, financial statements or audit reports play an important role for companies to present their financial performances, objectives as well as strategies in order to acquire confidence from investors and stakeholders.
Literature Review Framing the Issue In simple words, earning management is a practice of fraud (Public Oversight Board, 2003). The report of Public Oversight Board (2003) signifies that earning management is a vast concept covering both legitimate as well as illegitimate actions, which are undertaken by the management of a company with the intention of modifying its earning entity. The report of Public Oversight Board (2003) also stated that earning management can be both legitimate as well as illegitimate choices of disseminating financial information. For instance, earning management is considered to be legitimate when accounting records of certain expenses in first quarter is revealed in the fourth quarter. On the other hand, illegitimate information is related to presenting of financial records in inappropriate accounting period with the intention of misguiding the investors and company stakeholders (Public Oversight Board, 2003). ...
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