Essay on Earnings Management During Import Relief Investigations

1397 WordsMar 8, 20146 Pages
Earnings Management During Import Relief Investigations “Earnings Management During Import Relief Investigations” was written by Jennifer J. Jones. It illustrates her study and examination of the effects of managing reported earnings to alleviate the costs of tariffs and quota increases on import businesses. The ITC or (United States International Trade Commission) conducts relief investigations on companies that import goods so they can make a determination on the import relief rate. The ITC sets the import relief after reviewing a plethora of factors. Some factors include the profitability of the industry and the trends in profitability. Import relief is described as a set of federally imposed regulations which are designated to…show more content…
The import companies really don’t lose much when the import relief goes up. The cost of importing goods to the United States and paying the import relief is most often cheaper than manufacturing goods in the United States. The ITC looks at a company’s earnings before taxes. To circumvent the ITC the managers of import companies often use multiple accrual accounts. By playing somewhat of a shell game with the ITC the import companies are able to hide assets or shift them to the next quarter to show a lower profit margin. The author conducted a cross sectional investigation of the accrual accounts of import companies. Her investigation revealed that the import companies suddenly report lower earnings and income just before the investigation period. The obvious concern of the import industry is illustrated by the drastic counter measures put in place by the managers of import companies. The methodology of the ITC is effective at protecting domestic producers and the American economy but it puts import companies in a difficult situation. When presented by the moral dilemma of altering reported income import companies must make a decision which in the minds of many theorists is not a decision at all. Because businesses are driven by profits and managers are paid by the shareholders to protect the best interest of the company they are forced to

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