AFF 604 Chapter Notes - Chapter 24: Frank Dunn, Nortel, Moral Hazard
31 May 2017
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Earnings management: when efforts are made to change reported earnings from those that would normally be reported (often with intent to mislead investors and lenders). Harvard business review: a large majority of managers use at least some methods to manage short-term earnings . Cfo magazine: cfos 78% reported being asked to use accounting rules to improve results. 45% had been asked to misrepresent results, 17% reported that they had done so. Study from 1980-1990s: at least 10% of reported operating profits for the s&p"s 500 stocks were the result of earnings management techniques. Enron: up to 50% of reported earnings have been the result of manipulation. Principle-based accounting: most widely used outside of the u. s. has a greater reliance on judgment but presents fewer opportunities for earnings management than does u. s. rules-based accounting. U. s. accounting standards have been influenced by lobbying and political pressure to a greater degree than outside the u. s.
