Question

Explain what is meant by earnings management practices and discuss how specific Balance Sheet items may be impacted by such practices.

Answer 1

Earning Management Practices means window dressing in the preparation of company’s

Financial statements i.e., showing the position better than what it is or substantially worse

Than what it is to be.

Using the accounting techniques and procedures to mislead the information for taking wrong

benefits, like to avoid taxes or showing better position that what it is,to attract investors or

to take easy loan from Banks, are all examples of Earning Management Practices.

Balance Sheet Items may be impacted in the following manners:

1. Under -valuation of Assets
2. Over-valuation of Assets
3. Low provisions for bed debts
4. High provisions for bed debts
5. Not showing contingent liabilities