Conflicts In Earnings Management Essay Example | Topics and Well Written Essays - 4500 words

Conflicts In Earnings Management - Essay Example Empirical studies suggest that managers have the propensity to report earnings that exceed the forecast of analysts, precisely because negative earnings surprises tend to trigger adverse market responses and critical judgment of managerial ability and performance. This fact leads companies to implement strategies that reduce the likelihood of undershooting expectations of the analysts. Several authors have explained that companies may avoid reporting negative earnings in a number of ways. One of those ways is to apply discretionary accruals in order to manipulate earnings in the positive direction, which is also referred as accrual based earnings management (Badertscher, et al, 2009; Cohen, Dey & Lys, 2008). Another way is to adopt the real earnings management technique, where managers undertake actual economic actions so as to maintain accounting appearances. Although earnings management technique is employed only to meet forecast of the analysts, it entails a fair share of conseque nces when this technique abused. This fact leads the researcher to comment on accounting fraud, whose occurrences has plagued the world economy significantly.   Accounting fraud can be committed by individuals in the form of implementing earnings management techniques frequently or by abusing the creative accounting methods. There are a number of motives that might compel an individual to take such an action (Das & Kim, 2011). Firstly, companies might resort to account manipulation strategy.