Question

Why firms manipulate earnings?

Why firms manipulate earnings?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer-:

In simple words, manipulation of earnings is called earning management.

Firms do earning management because of various reasons. Power of CEO or top level management plays crucial role in earning manipulation. They either increase or decrease the earning of firms from the actual earnings.

Firms do earning manipulation because of following reasons-:

  1. Tax saving -: Firms reduce their income so that they have to pay less tax which leads to tax evasion.
  2. Better presentation of affairs of firms -: Firms inflate their earnings by which their accounting ratios gets boosted which shows better impression in the eyes of persons who have vested interest in the firm like partners, creditors, etc.

Thankyou.......

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Is it right to manipulate financial statement? If management manipulates financial statement, is it good for...
Is it right to manipulate financial statement? If management manipulates financial statement, is it good for shareholders? Why or why not?
Explain why it is unethical to manipulate the allocation base on a case-by-case basis in order...
Explain why it is unethical to manipulate the allocation base on a case-by-case basis in order to meet profitability targets. For example, changing the allocation base from machine hours instead of maintenance hours, even though maintenance hours have been used for years and are a better reflection of consumption of maintenance costs.
Firms in the death stage typically will cut their dividend in order to preserve retained earnings....
Firms in the death stage typically will cut their dividend in order to preserve retained earnings. a.   True b. False
If investors prefer firms that retain most of their earnings,then a firm that wants to maximize...
If investors prefer firms that retain most of their earnings,then a firm that wants to maximize its stock price should set a low payout ratio. True or False?
The pitfalls of price-earnings analysis include all of the following except The denominator in the ratio...
The pitfalls of price-earnings analysis include all of the following except The denominator in the ratio is accounting earnings Reported earnings can fluctuate over the course of a business cycle Flexibility in accounting rules can be used to manipulate operating earnings None of the above
Do you think companies can manipulate their Statement of Cash Flows? If so, what do you...
Do you think companies can manipulate their Statement of Cash Flows? If so, what do you think are some of the top ways in which companies could manipulate it?
Firms that are acquired to take advantage of bootstrapping often have: 
 A. a lower price-earnings ratio...
Firms that are acquired to take advantage of bootstrapping often have: 
 A. a lower price-earnings ratio than the acquirer.
 B. a higher price-earnings ratio than the acquirer.
 C. more outstanding shares than the acquirer.
 D. a higher market valuation than the acquirer.
Why is cash management important for firms?
Why is cash management important for firms?
Why is benchmarking difficult for diversified firms?
Why is benchmarking difficult for diversified firms?
You are estimating the price/earnings multiple to use to value company A by looking at the...
You are estimating the price/earnings multiple to use to value company A by looking at the average price/earnings multiple of comparable firms. Suppose the following are the price/earnings ratios of firms in the industry: Firm Share Price Total Earnings Share outstanding B 130 5,000,000 1,000,000 C 30 6,000,000 2,000,000 D 168 30,000,000 5,000,000 E 100 12,000,000 3,000,000 What is the average P/E ratio? Would you use all the comparable firms in calculating the average? Why or why not? What assumptions...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT