It has been observed “steps taken to manage earnings can range from the employment of
conventional GAAP flexibility, to flexibility that strains its GAAP connection, to behaviour that
goes well beyond GAAP boundaries and into the dark realm of fraudulent financial reporting”.

(Charles W. Mulford and Eugene E. ComiskeyThe,

Financial Numbers Game Detecting, Creative Accounting Practices,2002,

JOHN WILEY & SONS, INC.)

Required:-
1. Critically evaluate earning management within conventional GAAP flexibility? How does
it differ from behaviour that goes well beyond GAAP boundaries and into the dark realm
of fraudulent financial reporting?
2. Is there any relationship between corporate governance mechanisms and earning
management in business organisations?
3. How would earning management affect the true and fair view of accounting reporting?
Can it be fraudulent? Provide any two cases to support your answers.
4. Is the practice of earning management consistence with the qualitative characteristic of
Financial Accounting?

Answer rating: 100% (QA)

1 Earning management within conventional GAAP flexibility typically involves a company taking advantage of GAAP rules to its own benefit in order to i... View the full answer