Question

What is a major reason for the accounting scandals in the early 2000s? How do firms sometimes attempt to meet Wall Street analysts’ earnings projections?

Answer 1

Most people consider that managers’ temporary emphasis is compelled by Wall Street’s demand that companies to achieve or surpass the earnings predicted by stock analysts. Rather than report the actual earnings of the firm, managers try to meet the market’s potentials by beginning with the bottom-line number and backing into a sales figure. Thus, the sales may be dependable with the stated earnings figure, but do not denote the true revenue produced by the firm.