Finance accounting assignment on earning management

Finance report on earning management - grant ExampleThe second part of the paper would answer questions relating to impairment of assets. It will involve a limited review of the circumstances under which impairment is declared. It will also explain when companies must perform impairment reviews and quiz a practical case of impairment my Peugeot-Citroen and Vodafone.A. Managers Incentive for Earning Management.Earning management occurs when motorbuss use judgement in pecuniary reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the key economic performance of the company or to influence contractual outcomes that depend on reporting accounting numbers (Rowen and Yaari, 2009 26). This implies that earning management is centred around the fact that a firms directors and managers might want to present information in a trend and way that is not true nor accurate.Earning management is sometimes called disclosure managemen t and yeasty accounting. It includes the use of approaches and systems to disclose accounting information in a way and manner that meets a be end or objective (Alistair, 2008). Managers often have got targets that are predetermined for them by the board of directors. This implies that they would have to work hard and do whatever is legally acceptable and possible to meet those objectives and standards. In the act of attaining the given standards and objectives of financial statements, most managers end up putting together financial statements in a creative manner. In other words, they do everything possible and practicable to balance the accounts so that it reflects the ends or the utmost figure that is expected of the management of an organization. In most situations, earning management is done to smoothen profits and manipulate that the earning of the company in a given period is forged in a way and manner that it is in line with targets. This presents a different reality of the earnings of the period and this defeats the purpose of financial statements and financial reporting of capturing the economic realities in an objective and complete manner. These managers therefore manage their earning and disclosures in a way that favours them and enables them to appear to be meeting the end that they have in mind. In a research conducted by Cheng and Warfield (2005) they identified that the main objective for earning management amongst manager includes three interlinked compositions and concepts. They include 1. Earning management incentives 2. Future manager trading. 3. Enhancement of organisational position. The first idea is that earning management incentive allows managers to attain the favour of people who set targets for them. This is because in most cases, managers are judged and assessed on the basis of the attainment of results and targets. In reality, managers worth is identified by how come up he meets the financial and economic targets that are set by the people at the top of bodied governance. There is therefore the desire or expectation to use creative techniques to ensure that they attain financial targets. This leads to pressure to use various loopholes and techniques in accounting concepts to present a favourable position. The second idea is that managers often get incentives that are tied to their performance.