What is the management of earnings?

Earnings Management is a euphemism for accounting methodologies that are governed by a letter of generally received accounting procedures, but do not necessarily comply with the spirit of these practices. The management of earnings, sometimes referred to as creative accounting, is an attempt to present financial information in the most positive light, usually by detecting any negative elements to the extent that it is extremely difficult to detect. This dubious practice is sometimes used to attract investors, maintain current investors, and generally reflect the image of a company that is not entirely true.

One aspects of earning management that allow the practice to be somewhat successful in distortion of the true nature of the financial situation is that the information presented is generally correct. However, this information is presented regardless of any other relevant facts that would provide a more balanced and accurate Picture status of the company. For example, a company may publish a document to investors who come from the fact that sales from unityThe units increased by 25% in the last quarter, while not mentioning that the rise in sale was caused by a decrease in the price that essentially left the level of generated income unchanged since the previous quarter.

More successful cases of earnings management focus on telling the right amount of truth in the form of isolated facts, while reducing or omitting other data that would allow investors and others to understand the actual financial state of business. This creates a situation where accounting records are technically complete and contain records for all financial transactions. However, the question where these records are published in the accounting records is subject to questioning. Only the audit only with an external accounting company can be identified by these types of accounting discrepancies.

In recent years, the administration of earnings has come under closer control of investors and government regulatory agencies.The use of this practice has led to situations where investors eventually lost a lot of money because they invested on the basis of manipulated information they were provided. As a result of recurring cases of this type of creative accounting, many governments take steps to specify business accounting and responsibilities, making it difficult to use gaps in current processes to offer investors and other partial and too optimistic perception of the real financial situation.