Ethics in Earnings Management Essays

1320 Words 6 Pages
A company’s ultimate goal is to make money and remain a going concern. With that goal in mind, management must continually report sustained or improved earnings to stakeholders to ensure constant and new investments in the company’s future (Geiger & van der Laan Smith, 2010). The pressure to report positive results can lead management to engage in earnings management activities to alter short-term results to meet the goals set forth (Geiger & van der Laan Smith, 2010). In addition to the pressures on company management, broad accounting principles introduce ethical issues into the accounting profession (Gibson, 2011). Merchant and Rockness (1994) suggested the practice of earnings management introduces “the most important ethical …show more content…
It also includes the generalizations determined from the study concerning earnings management. It concludes with the long-run effects of short-term earnings management.

The accounting profession is often seen as being restricted by various rules and regulations, standards presented by professional boards, and the passage of time. The accounting profession is regulated by the Securities and Exchange Commission (SEC) (Gibson, 2011). Though much of the regulation of the profession has been privatized at the direction of the SEC, it is under the regulation of the SEC that Generally Accepted Accounting Principles (GAAP) are determined (Gibson, 2011). Nevertheless, the profession is subject to substantial regulation with numerous rules, principles, bulletins, and standards (Gibson, 2011). Regardless of the amount of regulation, the study (as cited in Gibson, 2011) indicates the profession has not been fully restricted to a point where ethics and precision are not open to interpretation by its members, especially with regard to earnings management. Even with the enactment of the Sarbanes-Oxley Act of 2002 in response to several cases of financial fraud which increased the regulation of the industry and the attention the profession receives, the principles with which the professionals are given provide room for short term results to be manipulated (Gibson, 2011). Within the framework provided under the SEC’s regulation, those within the profession must be
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