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Earnings management

From Wikipedia, the free encyclopedia

Earnings management, in accounting, is the act of intentionally influencing the process of financial reporting to obtain some private gain.[1] Earnings management involves the alteration of financial reports to mislead stakeholders about the organization's underlying performance, or to "influence contractual outcomes that depend on reported accounting numbers."[2]

Earnings management has a negative effect on earnings quality,[3] and may weaken the credibility of financial reporting.[4] Furthermore, in a 1998 speech Securities and Exchange Commission chairman Arthur Levitt called earnings management "widespread".[5] Despite its pervasiveness, the complexity of accounting rules can make earnings management difficult for individual investors to detect.[6]

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