When an owner cannot observe unbiased net income, the manager is tempted to opportunistically manage reported net income upward, so as to increase current compensation. Suggest reasons why the manager may not yield to this temptation.
Answer to relevant QuestionsDo you think that the market value of an oil and gas firm will be affected when RRA information is presented in addition to historical cost- based earnings from oil- and gas- producing activities? Explain why or why not.The owner of a medium- size electronics company is concerned about cash flow. The company operates in a growing industry and produces a product that is in high demand. The owner feels that cash flow should be higher than it ...For an income management strategy of taking a bath, the probability of the manager receiving a bonus in a future year rises. Explain why. (CGA- Canada) Refer to Theory in Practice 11.2, concerning General Electric Co. (=GE). In particular, consider the strong negative market reaction to lower reported earnings in April 2008. Required a. Why did GE’s share price fall? b. ...BP plc, a large British- based international oil and gas company, provides an interesting example of pro- forma earnings reporting. In its second quarter 2012 quarterly report, BP reported a net loss, based on IASB ...
Post your question