Preventing A Stock Market And Analyst Expectations

Understandably, there are a variety of ways in which a company can manage their earnings, and if accomplished successfully, the results can be highly profitable. Not all techniques are fraudulent, as effective earnings management is considered good for business and shareholders. Income smoothing is a specific example of permissible earnings management that involves controlling fluctuations in net income to make earnings less variable over a given period of time (Goel & Thakor, 2003). Smoothing is acceptable as long as it adheres to the restrictions of U.S. GAAP, which maintains that all revenues and expenses are accounted for in a defined fashion. There are a lot of incentives in figuring how to effectively smooth income, as substantial value can be created through the successful arrangement of financial transactions. Management is able to make more intelligent decisions with regards to the future of the firm if the earnings are able to match the forecasts. One instance this is seen is when management is faced with the decision to smooth total income or

There are three documented theories of crime causations: (1) the strain theory, (2) the control theory, and (3) the social learning theory. However, there are also biological causation of crimes which are further broken down into psychological, economic, and political theories. Understanding the sociological causes of why someone commits fraud helps fraud investigators and

Committing fraud requires motivation from perceived pressures like greed or meeting expectations. With the shift in investor focus and the need to meet analyst expectations, Scrushy and the “family” manipulated earnings to make HealthSouth appear more successful. Perceived opportunity establishes how an individual’s position enables fraud to be committed and

The United States has become increasingly concerned with the quality of earnings reported from companies. Although the quality of earnings should be able to be used as a predictor to the future of the company, management policies have been able to find a way that makes the company seem as if incoming income is steady, even if it is not. Ways like over and understating stating expenses can make a company seem better than they are. While the use of non-GAAP earnings can have benefits, many individuals are worried that using non-GAAP earning will lead to giving out false financial reports. No matter the accounting method used, all managers must act ethically on behalf of the law, and the company.

The purpose of this research is to provide a summary outline on internal auditing by uncovering motives behind corporate fraud, executives greed for power, money and influence. These issues will include a transitory story of the Archer Daniels Midland Company (ADM) scandal which results in fraudulent corporate practices using the fixed pricing scheme. If internal auditing practices were implemented at ADM may have saved investors and customers millions of dollars. This topic shifts to company responsibilities for employing internal auditing practices and managers’ duties to uphold integrity over a decade Sarbanes-Oxley Act of 2002 has been prescribed. This paper ties in the connection between internal auditing and management by flowing into managerial accounting processes.

Often time, people who commit fraud will use rationalization to justify their actions. A few common methods are to convince themselves that what they are doing is legal and that it is necessary as indicated by both Bucy et al.’s research (2008) and Dellaportas’ work (2013). Others have deployed Sykes and Matza's neutralization technique to help alleviate any guilt (Dellaportas, 2013; Trompeter, Carpenter, Desai, Jones, & Riley Jr., 2013). However, the key point here is that they must first view their action as wrong or else there will be no need to rationalize their actions (Trompeter et al., 2013). Mr. Boghossian in his court statement denied his wrong doing despite mounting evidence that pointed towards him committing fraud (R. v. Boghossian, 2015a), which shows that he is attempting to rationalize his behavior to alleviate himself of any guilt. Even though we now know significantly more about fraud then we used to, there is still an alarming increase in the rate of fraud (Wolfe & Hermanson, 2004), but perhaps by integrating criminal theories, we can grasp a greater understanding of why perpetrators commit fraud to better prevent them for doing so.

The results of the study show that the fear of falling may not be the primary motivator for the hypothetical white-collar crime (price fixing). The results show that the fear of

“Today’s fraudster is clever and operates in an environment ripe for criminal activity. Economic unrest is making it easier for employees to find ways to set fraud in motion – and a new breed of offenders is finding cunning ways to do so. After more than 60 years, the classic fraud triangle of three elements or events that motivate an employee to cross the line has morphed

It is found that managers are more likely to manage earnings because it is hard to verify whether the estimated fair value figures are well-intentioned or manipulated. Having to rely on their estimates introduces informational asymmetry. As in the case of Level 3 inputs, since managers have private information regarding appropriate values to select for model inputs as well as the underlying economic value of an asset (or liability), the informational asymmetry will create two problems- adverse selection and moral hazard.

Accountants cannot predict every business structure, every new and innovative transaction. Therefore, they build up principles that allow for flexibility so that they can adapt to changing circumstances. However, people make use of that flexibility. They employ earnings management techniques to shade financial unpredictability. Thus, the real results of the decisions of the management are veiled.

* With a focus on net income, managers could be incentivized to maximize ROE at the expense of other stakeholders, particularly bondholders. For instance, managers may fuel earnings growth by over-levering the company to benefit from tax shields in order to increase the value spread.  In addition, there are many other ways in which managers can manipulate earnings, for example, by slowing down depreciation charges or selling off assets to realize extraordinary gains.

Tremendous pressure is placed upon accountants and executives to provide favorable financial conditions of their organization (Sherman & Young, 2001). As such, accounting practices are continually a source of question and concern for many organizations in reporting profits and corporate financial information to shareholders, stock markets, and government filings. Hence, the role of the ethical accountant and executives becomes crucial to the continued success and operation of the organization. Consequently, pitfalls or minefields of questionable accounting practices must be avoided.

Introduction. The authors studied the earnings management and its manipulation techniques that executives use to obtain preferred financial results. The regulatory changes promoted an aggressive financial reporting. The pressure of mandatory reforms and financial markets affect CFO’s personal financial interests and interest of corporation that the management can manipulate with. The authors investigated the influence of incentive conflict and earnings management ethics on financial reporting (p. 506). The main objective of research is to comprehend the earnings management structure, earnings management ethics, and examine methods to minimize CFO’s harmful effects on earnings.

Introduction. The author studies accounting methods, earnings management, and financial reporting to examine the ethicalness of judgments. Management’s ethics play a key role in earnings management activities and financial reporting. The researcher questions if the accounting profession and businesses build the line of tolerable and prohibited earnings management practices (pp. 285 -286). The main objective of research is to examine ethically related judgments through earning management activities. Management plays different ethical roles to achieve expectations. The author raises concern on changes in ethical concepts when management has personal interest in company earnings. The study is important because it investigates the role of management and stakeholders in earnings management processes, and situations, under which the judgement becomes more favorable (pp. 286 -287). The author considers two problems: 1) unethical accounting activities lead to fraud, and 2) complexity of ethical decisions due to personal gain.

The risks and rewards of corporate fraud incline many to question what some motivations of fraud are. The most evident motivating factors are certainly money and power. The corporate world offers many lucrative positions that come with generous salaries, along with these benefits come nefarious means of achieving ambitions. The fraud triangle is a well known tool created by Donald R. Cressey which helps to, “explain the reasoning behind a worker’s decision to commit workplace fraud” (HR Zone, par. 1). There are three aspects designed to break down some motivating factors for fraudulent activity. Pressure, or incentive, indicates a person must feel the need for the money they are obtaining illegally such as insufficient revenue, low stock prices, or personal expenses. Opportunity illustrates a person has the