Earning Management

4172 Words17 Pages
Does the Commercial Banking Industry of UAE Practice Earnings Management Dr. Mohammed Obeidat Introduction It is the right of external users of accounting information to be provided with more adequate information to protect their interests. Many questionable issues concerning the term of earnings management are still available. Auditors, accountants, financial analysts, and other concerned parties may hold the responsibility of detecting external users from the practices of earnings management. Many questionable issues are still available regarding the term of earnings management. Some people may have no enough idea about what practices are classified under earnings management, and what practices can not be classified under this term.…show more content…
Moreover, activating sales during the last month of the accounting period through granting discounts to customers is also in agreement with the GAAP, and is not a violation to the accounting standards. There are different incentives to managements of firms to practice the phenomenon of earnings management. Most of these incentives are related to benchmarks of earnings. Sometimes, the previous period's performance may be the benchmark to the firm. In other cases, the benchmark to the firm may be the expectations of financial analysts. The promised compensations to the firm's management may be the most important incentive of the practice of earnings management. Benchmarks are necessary for the determination whether the management deserves or does not deserve the promised compensation. Sometimes, the desire of the firm's management to increase the stock market price may also be one among the incentives to earnings management, especially, when the management is looking for more compensation. The normal positive relation between earnings and stock market price means that as the amount of announced earnings increases, the common stock market price is also increases. Therefore, when a desire exists to the firm's management to affect the common stock market price, the management will manage its earnings. Reducing the amount of income tax may also be one among the incentives of practicing earnings management. In many countries, business
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