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Dangerous Morality of Managing Earnings: 5 generalizations

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After reading case , "The Dangerous Morality of Managing Earnings" I need help addressing the following elements:

Discussion of the five generalizations from the findings in this study relating to managing earnings.
Discussion of management's ability to manage earnings in the long-term given the operational manipulations discussed in the case.

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Your discussion is 597 words and a reference and gives you ideas and examples on each of these to get you started on your project.

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1. Respondents viewed managing earnings by changing accounting techniques or methods as less acceptable than achieving the same managed earnings by altering operation actions.
This makes a great deal of sense. It is not "foul play" to manage the business. But once the business actions have occurred, to then want to twist the transactions to yield a particular income is accounting gone haywire. The question is whether business actions WITH NO PARTICULAR PROFIT MOTIVE are acceptable. That is, if you decide to send out coupons to increase sales, is that an OK way to manage earnings? Most would say yes. But what shipping early, which does not attract new activity and only shifts the timing is another matter. So, there is a continuum from probably ok to probably not-ok, with profit-seeking actions as an ok way to change profits (sell something at a gain) and changing accounting treatment of past events as not-ok.
2. Direction ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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