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The Relationship Between Accounting Responsibility Of Real Earnings Management

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Hence, the negative impacts of earnings management and accusing earnings management as one of the main reason of last decade financial scandals have forced accounting setters and financial regulators to provide solutions and initiatives for hindering earnings management. However, most of the attempts have failed, since earnings managements researchers found that managers still can achieve their earnings management objectives, through manipulating real activities. So it is more useful to examine the relationship between accounting responsibility in real earnings management. ???? There are some reasons for why managers manage earnings. At the basic level, the reasons are related to the performance of the firm with respect to some benchmark. This benchmark could be the previous period’s performance that shows an improving trend, analyst’s expectations or whatever benchmark is specified in a manager’s compensation contract. Missing these benchmarks can be extremely costly because the relationship between stock price and compensation and earning is very non-linear around the benchmarks. When firms are extremely close to the target, the incentives to take earning just over the target becoming exceedingly strong. In these cases, the firms will try and use some form of upwards earnings management to “bump up” earnings over the target. However, when firms are below their target, they have an incentive to make things worse for the following two reasons. Firstly, it is highly
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