财务会计理论Earnings Management.pptVIP

Chapter 11 Earnings Management * * Earnings Management Strategies Through real business transactions Active acquisition Arbitrarily decide revenue recognition point Sale of profitable financial instruments (Gain Trading) etc. Through accounting treatments/adjustments Offset one-time gains with restructuring charges Adjust level of reserves (allowances, accruals) Change of accounting estimates (e.g. pension rate) Lower the book value of asset for sale to generate a higher gain - How to achieve this? * Did GE Benefit from EM? Earnings have risen every year The gains have been fairly steady Investors believe GE is able to “deliver strong, consistent earnings growth” Both segments beat market peers * Why EM is possible at GE? GE‘s size and diversity Hard for any analyst to understand BOTH segments Annual report is “skinny” given the size and complexity of business Holes in regulation Hard to differentiate “real” business from “earnings-target-driven” business CEO is in favor of “stable” earnings * GE’s Self-Defense Assumed return on pension assets rate reflected market condition and was comparable to industry Investors do not value one-time gains, but value long-term, stable growth Tactics applied by GE are not earnings management, but strategic decisions that make the business better going forward It is fine to meet earnings objective through acquisitions as long as the executives keep firm’ long- and short-term goals in mind The firm has some discretion, but such discretion is limited, given that right market conditions must be in place. The firm cannot do it at will. GE Reported Net Income (1993-2008) Even under securities market efficiency, GE is so large and complex that even analysts cannot prepare accurate earnings forecasts Management has best inside information about expected persistent earnings Direct communication blocked Creates role for earnings management to reveal management’s expected persistent earnings * A Further Discussion on GE:Theory in Pra