Question

a. Define earning management and briefly explain TWO (2) classifications of earnings

management, with one example of activities under each classification.

Answer 1

In Accountings, harning management is the use of acounting Archnique to produce Francial Stakmarks that present an overly posetine view of a Campany's business activities and financial postion many accounting Rules and Principles Require that a company's management makes Judgement is there frinaples. Earnings management takes advantage of how accounting Rules are applied and Creates Financial Statements that inflate or Smooth eornings a Theme are two types of cornings management. © effecient earnings management: Used to improve earning, informatneness in Communicating pri private information .The purpose of effecient earnings management is that the managers wants to convey Prinate information to investors to improve the informational Content to earnings and promote Communication between managers Shareholders and publet public, Scanned with CamScanner

I • Opportiniste earnings management: Mengement reports cornings opportunistically to maximize his/her ukiling. Relating to contractual managerial Compensation and debt lavenants which are both linked to report earnings that . 0 CS Scaắned with CamScanner