A Challenge to Business Leaders to End Earnings Management

Abstract

It is time for users of corporate financial statements to demand an end to abusive earnings management (EM). EM has persisted for decades as Accrual-based and Real EM. Both flourish inside vague accounting principles and under the veil of corporate secrecy. The existence of EM is irrefutable; it is well-documented in professional and academic literature. What is missing from the literature are simple, commonsense strategies for eliminating EM or rendering it harmless. EM is bad for our financial system for many reasons. When business leaders abandon EM or use it sparingly, financial reporting will increase in quality.

Who Makes the Call on Goodwill Impairment Charges: CEOs or CFOs?

“…Thus, it is unclear whether findings based on non-U.S. firms applying IFRS can generalize to U.S. firms. Nonetheless, the evidence is consistent with anecdotal evidence reported in financial press that new CEOs tend to "clean the slate" as they begin their tenure (Call, 2019). For example, when the new CEO at Hewlett Packard begins her executive role in 2012, the company recorded $13.7 billion of goodwill impairment -an amount equal to 35% of the beginning of the year total stockholder's equity.…”

Business Students’ Delayed Gratification and Its Impact on Ethical Perception

“…Septiari and Maruli (2017) supported the effect of pressure on managers' earnings management behavior. Call (2019) explained that earnings management behavior benefits current shareholders at the expense of future shareholders. Coram et al (2022) expanded on this theory and explained that earnings management shields current shareholders from the costs of missing market expectations at the expense of future shareholders.…”