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Earnings Management: The Continuum from Legitimacy to Fraud. - Research Paper Example
Finance & Accounting
Pages 3 (753 words)
Earnings Management: The Continuum from Legitimacy to Fraud [Name] [Date] Introduction There is an endless continuum between the concepts of fraud and legitimate earnings management. It is necessary to split this challenging question in three main parts: how to define legitimate earnings and how to define fraud earnings management (Trochim & Donnelly, 2008)…
Further on this research paper is focused on critical reflections in the field of accounting, illustrating them with famous cases and referring to relevant studies in this field (Shank, 2006). Fraud is defined as any attempt to deceive another to gain profits (Shelton, Whittington, and Landsittel, 2001). Definition of “earnings management” can be as follows: both legal and illicit actions of management team, which would finally lead to destruction of the company's earnings. Moreover, earnings refer to the profits of the company. Earnings of the company are interesting both for the investors and analysts and earnings management is a delicious slice of a financial cake From legitimacy to fraud in earnings management Thus, different companies are dealing with the income smoothing. For example, they can write their financial statements and increase/decrease figures of income. An organization would have advantage from writing stable figures (Keim and Grant, 2003). Different case studies illustrate a negative influence of fraud in earnings management on the company's gains, goodwill and further performance in the market. In accordance with Shelton et al (2001), fictitious transactions result in fraud. ...