Effective Earnings Management - Dissertation Example

The paper 'Effective Earnings Management' is a great example of a finance and accounting dissertation. Earnings management can be reasonable business practice, but it may also reflect some misrepresentation of a firm's true position. For this thesis's purposes, fraud will be defined as a deliberate misstatement or omission of material facts. All of the misrepresentations are not frauds; however, this thesis will generally focus on misstatements and omissions that will invariably constitute frauds if these will be severe.

Accounting fraud is an “intentional” misrepresentation of data with the intent of causing an alteration in sales, expenses, revenues, or other factors that would benefit the firm/organization/or individual in a positive manner. For instance, Enron Inc., USA, indulged in accounting fraud, thereby diversified its huge debts of their balance-sheet. WorldCom, the USA, involved in accounting fraud, thereby underreported its line costs by capitalizing instead of showing it as expenses and also hiked revenues through fake accounting entries mainly to meet Wall Street’s financial norms (Jonathan, 2010, p.36). Fraud violates the main acknowledged accounting values.

Virtually all administrative activities include a potential outcome on earnings, in that logic encompasses earnings management; if not, the activities most probably would not take place. Hence, earnings management, in general, implies, conversely, that the actions that are reached are intended to even out or smooth the earnings over more provisional or yearly accounting periods. It is designed to achieve a targeted level of earning and conform to the security forecast (Fischer & Rosensweig, 1995 quoted in Farag & Elias, 2012, p.185). While such actions are not per se specifically violating the Generally Accepted Accounting Principles (GAAP), these are unlikely to be criminal frauds.

Still, they may impact the accuracy of the information drawn from financial statements, resulting in tortuous misrepresentations.