Three techniques are adopted for earning management:
- Agressive and Abusive
Accounting: It violates the revenue recognition concept and
shows a high profit. Detection: It can be
detected with inter period comparison of accounting data.
- Conservative
Accounting: Where it writes off all the expenses and losses
in the year of high profits. Detection: The
comparitive analysis of the proportion of the expenses and revenue
belonging to the current year with that of previous year can detect
the misleading information.
- Fraudulent
Accounting: Here it violates the Generally Accepted
Accounting Principles. Detection:To detect
these misleading informations you must go through 'GAAP' and verify
wether the principles are adhered to properly.