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Earnings Management: The Continuum from Legitimacy to Fraud.
Finance & Accounting
Pages 3 (753 words)
Earnings Management: The Continuum from Legitimacy to Fraud [Name] [Date] Introduction There is a "slippery slope" when crossing the road between fraud and legitimate earnings…It is better not to cross this road and stay aside, but in the majority of cases a continuum between the concepts of legitimacy and fraud in earnings should be bridged in the field of earnings management.
Let us consider the first concept, i.e. a concept of "fraud". We can refer any attempt of deception to fraud (Shelton, Whittington, and Landsittel, 2001). When we talk about “earnings management” we always think about financial gains management of a legal entity. It is evident that in the process of this kind of operations fraud can occur (Hoffman, Kamm, Frederick, and Petry, 1996). Thus, there is a "spicy mixture" between legitimate and fraud practices in the process of earnings management. From legitimacy to fraud in earnings management To smooth the corners, different companies are dealing with a great variety of operations to conceal real figures of income. The main goal, as a rule, is to reach a stable progressive development of financial gains of the company (Keim and Grant, 2003). On the example of famous case studies, we can restore in our memories the way Enron's accountants were subjected to the external pressure of their CEOs and stakeholders and were driven into temptation of fraud practiced in earnings management. Shelton et al (2001) underline: fictitious transactions can cause fraud in earnings management. ...
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