Members of the financial community often allege that corporatemanagers “manage” their company’s reported accounting...

80.2K

Verified Solution

Question

Accounting

Members of the financial community often allege that corporatemanagers “manage” their company’s reported accounting results. Toaccomplish this, they commonly use “discretionary accountingaccruals.” Discuss the possible motivations behind this behavior.Could you envision a situation where a manager might manage acompany’s earnings downward? If so, why?
When a company’s management or its independent auditors discovermisstatements in financial statements, they are required toevaluate the nature and materiality of misstatements, and makedecisions to issue financial restatements. What are the negativeimplications associated with financial restatements?

Answer & Explanation Solved by verified expert

3.8 Ratings (583 Votes)

In accounting the term accrual refers to a journal entry where a revenue or expense item is recorded in the absence of an actual cash transaction Discretionary expenses that take place to promote or enhance the companys standing with its employees often it is called as Earning management There can be a strong motivational factor to managers to play with earning figures since bonuses are often based on the bottom line Managers may be tempted to increase earnings figure since their bnuses may be direct figure of this amount On the other hand managers may be take a bath in a year where net income is expected to be low since they will not reach the earnings figure required to receive a bonus There is the minimum net income figure required for the managers to receive a bonous the cap is the maximum net income figure for which a bonus will paid out Therefore managers realizing that they will not be able to reach the targeted minimum net income figure may be See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingMembers of the financial community often allege that corporatemanagers “manage” their company’s reported accounting results....Members of the financial community often allege that corporatemanagers “manage” their company’s reported accounting results. Toaccomplish this, they commonly use “discretionary accountingaccruals.” Discuss the possible motivations behind this behavior.Could you envision a situation where a manager might manage acompany’s earnings downward? If so, why?When a company’s management or its independent auditors discovermisstatements in financial statements, they are required toevaluate the nature and materiality of misstatements, and makedecisions to issue financial restatements. What are the negativeimplications associated with financial restatements?