Question

“Earnings management are meant to show better image” to what extent is this statement true ?

Answer 1

Yes, Earnings management technique are meant to show the better image of company to some extent by manipulating the financials data of the company. Under earning management , accounting techniques are being used to present financial statement that shows the overall better view of comoany's business & financial stability. Many accounting principles requires that the company management make judgement in order to follow those principles.

Earnings mangement use the benefit of how accounting rules are used and present financial statements that increase or smooth earnings. One of the example of earning management is to change the company policy so that more costs are capitalized rather than expensed immediately. Capitalizing costs as assets defer the recogniition of expenses and increases profits in shorter period.