Methods and Techniques Used by Firms to Manage Earnings and the Coursework

Methods and Techniques Used by Firms to Manage Earnings and the Motives behind Earnings Management - Coursework Example The value of this activity in large firms seems to be quite high at the level that firms of this size need to publish their reports regularly so that the public is informed about their performance. For this reason, the alteration of figures included in a firm’s financial reports has become a common practice, is related to the efforts for keeping the organizational performance standardized. Still, in the literature, a different view seems to be the most popular: the motives behind earning management cannot be easily accepted. Indeed, quite often earnings management is used for giving a different impression to the public in regard the performance of a particular organization. The motives related to earnings management are also presented in this paper, offering important explanations on the following question: could earnings management become popular in all countries worldwide or not? It is proved that earnings management is not related to geographical criteria; rather, it seems that the position of a firm’s in its industry and the targets set by the managers are used as criteria for deciding the introduction of earnings management in a particular organization. Earning management can be characterized as one of the most important organizational processes. A series of factors have been related to the expansion of earnings management across organizations of different characteristics. In practice, the particular process is often used for promoting personal interests rather than the interests of the organization. The above view is verified through the definition of earning management, as included in the study of Ronen & Yaari (2007). According to the above definition, ‘earning management occurs when managers exercise their discretion over the accounting numbers with or without restrictions†¦ such discretion can be either firm value maximizing or opportunistic’.