Discussion Week 1 - Assignment Example

Architecture and Software Development The Phenomenon In Current Accounting Practices That Has Been Dubbed The Earnings Game In The Article By Justin FoxThe term earning game refers to the ways companies have and the measures they take to achieve their quarterly earnings forecasts. This game has no actual beginning or end. The earnings by companies have been reported to beat the estimates. As a result, companies are prevailing well, hitting their targets. According to Fox (1997), quite a number of S & P companies have beaten the consensus earnings than losing them.

The earning management is a very critical phenomenon, but is much respected to companies, where business decisions and accounting prospects are temporally made to boost earnings. It implies that, in regards to the earning status of the numerator at the same time as the earnings status in the numerator also when depressing the terms of shareholders equity status in the denominator can be boosted when calculating the return on equity ratio artificially. The cash return on an actual equity is actually the consequential figure (Condon, 1999).

The accounts analyst relies on guidance from companies to outline their forecasts which guides to a lower number. The price of missing quarter can go up sharply from an exceptional interplay, among the stocks which are highly priced. Fox (1997) further state that, if you don’t have an extra penny to keep Wall Street happy, as a result your company will be at stake since it will send your stock to reduce, saving the those earnings for next quarter is better than missing a dime or two.The Key Reason Of Why Companies Play This Game.

This concept is of significance to the companies. As the companies play the earning game they are able to anticipate whether the revenue will fail. Conversely, in case of any prospects that are on a quarter of a particular stated stock, best businesses will ultimately see the mainly equity value approval. Mutually, companies should not much care about the earnings of a given quarter, since profit from the markets behaviors to both earnings drop and hits is what they seek every day.Further, companies in play, when the stock price immensely goes down compared to its basic value, there are chances of going out or private.

Thus a company deserves to be valued accordingly based on its own future financial cash flow (Nelson, 2011).ReferencesCondon, B. (1999).Creative Accounting. Retrieved on 19th Aug 2014 from: http://webcache.googleusercontent.com/search?q=cache:iE18IruxKaIJ:www.oocities.org/wallstreet/district/9390/links3.htm+&cd=10&hl=en&ct=clnk&client=firefox-aFox, J. (1997). Learn to play the earnings game (and Wall Street will love you) the pressure to report smooth, ever higher earnings has never been fiercer.

You dont want to miss the consensus estimate by a penny--and you dont have to. Retrieved on 19th Aug 2014 from: http://archive.fortune.com/magazines/fortune/fortune_archive/1997/03/31/224039/index.htmNelson, B. (2011). Is The Earnings Game Worth Playing? Retrieved on 19th Aug 2014 from: http://seekingalpha.com/article/305661-is-the-earnings-game-worth-playing