Earnings Management: The Continuum from Legitimacy to Fraud

Research Paper
Finance & Accounting
Pages 4 (1004 words)
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Earning management entails legal management decision making and reporting that is aimed at attaining stable and predictable financial results. Earning management is often considered materially misleading and thus a fraudulent activity.


Managers are sometimes faced with the dilemma of financial reporting and may engage in fraudulent manipulation of accounts to foster their interests. This paper is an annotated bibliography of qualitative research on earnings management continuum from legitimacy to fraud.
Key words: earnings, fraud and management. Introduction Research on earnings management estimate that 8-12% of companies with small pre-managed earnings decreases manipulate earnings to achieve earnings increases and 30-44 percent of companies with small pre-managed losses manage earnings to create positive perception (Berth and Taylor, 2010). Managers engage in financial reporting fraud instead of the legitimate earnings management. There is significant amount of research that point to fraud in the financial reporting. Many managers engage in the unethical behavior of account manipulations to suit their interests or depict false perception on the performance of the company they are managing. Using the institutional approach design, Tyco a limited company under the management of Dennis Kozlowski was identified and studied. The study showed that there was fraud in the earnings management of the company during his era. ...
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