Importance Of Earnings Management

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Often times the topic for debate in accounting and ethics are the practices and principles of earnings management. Is the practice of earnings management through the use of deferred maintenance ethical or not? What is earnings management? According to Investopedia (n.d), earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of a company 's business activities and financial position. It is said that many accounting rules and principles require company management to make judgments. Earnings management takes advantage of how accounting rules are applied and creates financial statements that inflate earnings, revenue or total assets. When looking into the meaning of deferred maintenance, it is the practice of postponing maintenance activities such as repairs on both real property (i.e. infrastructure) and personal property (i.e. machinery) in order to save costs, meet budget funding levels, or realign available budget monies (Wikipedia, n.d). To answer whether it’s ethical or not, would depend on the prospective in which you choose to view the situation.
Earnings management is considered ethical when used to smooth out fluctuations in earnings and present a more consistent
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Securities and Exchange Commission (SEC). According to Wikipedia (n.d) the basic objectives are that financial reporting should provide information that is: useful to present to potential investors and creditors and other users in making rational investment, credit, and other financial decisions, helpful to present to potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts about economic resources, the claims to those resources, and the changes in them, helpful for making financial decisions, helpful in making

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