Summary
In the wake of continuing, highly publicized financial frauds and failures, the accounting profession has placed renewed emphasis on issues related to earnings management and earnings quality. Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements, which was issued in December 1999 in response to the Committee of Sponsoring Organizations of the Treadway Commission report, illustrates the importance of earnings to the SEC. The SEC and the public are demanding greater assurance about the quality of earnings. Notwithstanding the grave threat that abusive earnings-management practices pose to the reliability and accuracy of financial statements, the accounting profession may be reluctant to address this issue. While there is evidence that accounting educators are attempting to make accounting students aware of abusive earnings-management practices, further efforts are needed by state societies and public accounting firms to better equip CPAs with the tools necessary to identify earnings-management techniques. Education could help to reduce the expectations gap between auditors and financial statement users.
See the full content of this document
Extract
Earnings Management and Its Implications
In the wake of continuing, highly publicized financial frauds and failures, the accounting profession has placed renewed emphasis on issues related to earnings management and earnings quality. The SEC and the public are demanding greater assurance about the quality of earnings. Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, which was issued in December 1999 in response to me Committee of Sponsoring Organizations of the Treadway Commission (COSO) report, illustrates the importance of earnings to the SEC.
In the August 1990 Management Accounting, William J. Bruns, Jr., and Kenneth A. Merchant reported me results of dieir survey of the readership of me Harvard Business Review (HBR). That survey described 13 earnings-management situations that the authors had direcdy or indirecdy observed, and asked HBR readers to rate the acceptability of those practices. Characterizing the results as "frightening," diey obse...See the full content of this document
Sponsored links
