There is often a blurred line between appropriate and inappropriate accounting techniques, but the audit committee must attempt to clearly distinguish which is which. The guiding principle of the audit committee is shifting from a focus on technical accounting procedures to determining whether disclosures in the financial reports present a true and fair view of the entity's affairs. Companies often face great deal of pressure to meet the earnings forecasts they present to investors and analysts make. Executives of companies in this situation often resort to using a range of 'earnings management' techniques to help them 'make the numbers'. These techniques will often exploit loopholes in Accounting Standards (IFRS/MFRS) to manipulate the company's income. It is up to the audit committee members to identify whether earnings management, accounting estimates and other judgments are legitimate or are designed to blur the true financial position of the company.

Requirements:

2.1.What earnings management techniques are outlined in the above passage? Explain your answer.

2.2.What role can the audit committee play in detecting and/or limiting earnings management? Discuss your answer.

2.3. What relationship does the audit committee have with the external auditors in ensuring earnings management is within acceptable limits? Discuss your answer.