Earnings management : what is earnings management ? the role of manager its acceptability

Abstract EN

Regardless of its intent earnings, management may be seen initially as alterations or interventions, which require judgment in the financial reporting process.

This paper intends to explore and analyse this activity due to many voices and studies connected global failures to earnings management, and asked for its identity and its "legality".

Earnings are sometimes called the bottom line i.e.

the central item in financial reporting process.

They represent the extent to which a company has engaged in value-added dealings; they are the indicator that helps direct resource allocation in capital markets.

Given the significance earnings have, it is no surprise that company management has an interest in how this vital element is disclosed.

That is why executive managers are keen to understand the effect of their accounting choices so they can make the best possible decisions for their businesses.

Or might be, as McKee (2005, p.

1) says “They must, in other words, learn to manage earnings.” And in doing such “management” managers do not need to have recourse to illegal earnings management; they can find enough latitude within the set of generally accepted accounting principles (GAAP) to facilitate reaching the desired earnings.In view of these assumptions the paper explored the identity of earnings management and analysed its relation with preparers and users and results in that earnings managements can be seen as a suspicious phenomenon at least in view of the recent business scandals and corporate collapses such as of Enron, WorldCom and Maxwell which are considered to be a result of management fraud done via earnings management.

The paper also suggests more research on personal subjective characteristics of officers responsible for producing and certifying financial information.