财务会计理论—earnings management2a文档.ppt

* Opportunistic Version Managers choose accounting policies for their own benefit Efficient Contracting Version Managers choose accounting policies to attain corporate governance objectives of the firm * Growing firms: higher accrual. Mature firms: lower accrual (cash flows and net income about equal). Finding: For firms with large accruals (e.g: growing firms), net incomes are even more highly associated with share returns. Comparison of CFO with accrual income Accrual income more closely measured firm performance (as reflected in stock returns) than CFO. Accrual income is better especially when cash flows have greater timing and matching problems. Other studies e.g. Bowen et al (1987), Livnat and Zarowin (1990) found that both cash flows and earnings figures have incremental information. * Earnings management is made possible because GAAP do not completely constrain managers’ choices of accounting policies procedures, Accounting choices are also motivated by strategic considerations of the managers - such as meeting earnings expectation etc.. Pros for allowing the discretion: allows credible communication of inside information. Cons for allowing the discretion: managers abuse the flexibility by misstating the financial results. * Earnings Management Chapters 11 11-* Earnings Management (EM) Definition Choice of accounting policies to achieve some specific manager objective Can Also Include Management of Real Variables RD, advertising, maintenance Timing of disposals Earnings Management Techniques Revenue Recognition Accounting Policy Change Timing of Adoption of New Standards Restructuring, Writeoffs, Asset Sales, Provisions Accruals (Discretionary) * * Illustrations Operating cash flow as per cash flow statement $1,000 Less amortization/ depreciation expense $-50 Add:Increase in (net) acc receivable during the yr +40 Add: increase in inventory during the yr +100 Add: Decrease in accounts payable accrued liabilities during the year +30 12