Cal 1000
Managers should be allowed to manage earnings
Our position is that managers should be allowed to manage earnings .
1) Our first argument is that managers and Investors share the same goal of the company ,which is to keep their revenue and income growth rate constant and smooth . Consider the fact that many ventures or small companies go out of their business every day, if they are successful, they do in usually one fiscal year. Some of the failure might be due to the state of nature , future event predictions are hard to be exactly correct. One of the example of would be Gold explorer companies, they usually have bunch of expenses and amortization of machineries without any revenue for few years, and truly chance of making a profit in the future is very low. Investors still invest in it, and once the announcement spread out that the company has found big chunk of gold estimated billion of dollars, stock prices are going to sky rocket, but what happens after? The company can’t clearly find gold mines every fiscal year, but investors will still expect decent return. Hence, managers should be responsible to maintain their company healthy, They are also responsible to stay within the guidance of earning management ,which brings me to our next point
2) Our next point is that as long as the managers follow the guidance of earning management , it's wont be an issue for choosing different accounting policies for the company, because the earnings would be the same at the end of the day. Earnings
Management is the choice by a manager of accounting policies, or real actions that affect earnings, so as to achieve some specific reported earnings objective. It's important to know that earning management is based on the fact that true net income does not exist. The true net income exists only as a theoretical concept and do not necessary describe an amount that is not known or knowable by management. This conclusion is supported by FASB. As the net
Our position is that managers should be allowed to manage earnings .
1) Our first argument is that managers and Investors share the same goal of the company ,which is to keep their revenue and income growth rate constant and smooth . Consider the fact that many ventures or small companies go out of their business every day, if they are successful, they do in usually one fiscal year. Some of the failure might be due to the state of nature , future event predictions are hard to be exactly correct. One of the example of would be Gold explorer companies, they usually have bunch of expenses and amortization of machineries without any revenue for few years, and truly chance of making a profit in the future is very low. Investors still invest in it, and once the announcement spread out that the company has found big chunk of gold estimated billion of dollars, stock prices are going to sky rocket, but what happens after? The company can’t clearly find gold mines every fiscal year, but investors will still expect decent return. Hence, managers should be responsible to maintain their company healthy, They are also responsible to stay within the guidance of earning management ,which brings me to our next point
2) Our next point is that as long as the managers follow the guidance of earning management , it's wont be an issue for choosing different accounting policies for the company, because the earnings would be the same at the end of the day. Earnings
Management is the choice by a manager of accounting policies, or real actions that affect earnings, so as to achieve some specific reported earnings objective. It's important to know that earning management is based on the fact that true net income does not exist. The true net income exists only as a theoretical concept and do not necessary describe an amount that is not known or knowable by management. This conclusion is supported by FASB. As the net