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

There are many reasons for accounting scandals to break out. Out of them, most people believe that managers’ short-term focus due to Wall Street's demand was the main reason.

Analysts on the Wall Street estimates the earnings of a firm in advance, which results in such information being discounted in the price of the share. When analysts on the street estimates a number and the company couldn't meet the expectations, the managers resort to manipulation of accounts in such a way, that such figures are shown in the Financial Statements.

Such steps are taken by the managers because if the company is unable to meet the expectations, it shows weaker performance, thus making investors uninterested it it's stock. This will drive the share price down, which is not desirable for the managers.

This is considered to be the main reason for the for the accounting scandals in the early 2002s.

answered by: anonymous