The earnings report management in the United Kingdom - Essay Example

In the last decade, the earnings report management in the United Kingdom has been done through a strengthening method by increasing tough and strictorganizations of corporate governance, auditing standards and accounting standards. The United Kingdom has also established a financial reporting review panel that has increased strict terms and threats for listed and large private firms in United Kingdom. However, certain issues that touch on commercial pressures have undermined these improvement practices in reliability and quality of financial reporting.

These aspects include adverse market reactions to the share price put on a listed entity incase outcomes fall short of the expectations of the market, the relationship of executive managers; salaries to results, stock options and capital gains, compliance with loan covenants and understating profits for the reduction of tax liabilities among others. In the United States of America, financial reporting has been strengthened with vigorous investigations of earnings manipulation and manager dealings.

This was highly used by US SEC and other regulatory authorities. This was done mainly because financial frauds that have occurred recently have been due to insider trade relationships and earnings manipulation. In addition, there have been changes in accounting discretion, which influence issues that touch on accounting and financial earnings. One of the most famous methods that managers can use to manage earnings is through the administration of accruals with avoidance of direct cash flow outcomes.

Some examples are unjustifiable dreadful debts requirements, delay in asset write-offs and opportunistic assortment of accounting techniques among others. However, the discretionary element of accruals has created a loophole for executive to manipulate the accrual element of earnings. Because of the flexibility provided by Generally Accepted Accounting Principles (GAAP), accrual earnings management could result to managerial discretion.