Question

Analyze and discuss when earnings management may be an ethical practice and when it is an unethical practice.

Answer 1

Answer:

Earning management is nothing but artificially inflate or deflate profits, revenues or earnings per share figures to gain powerful position in the market.there are two broad categories of earning management; operating earning management and accounting earning management.in terms of utilitarian prospective, accounting earning management is more legitimate where in by using flexibility in accounting standards to alter earning numbers. In earning management, management purposefully manipulate stock price up in advance to encash stock options.as per utilitarian view, financial statements should not be altering for personal gain except any utilitarian benefits.

Many parties with widely varying opinions have weighed in on the debate regarding the ethicality of earnings management. Regulators take a conservative approach by cautioning against inherently "un ethical" earnings management, arguing that it distorts a company's true earnings and misleads the investing public. Others regards the descretion inherent in reported earnings as a valuable tool that can be used to incorporate management private information and company specific circumstances into Accounting transactions.