Conservatism Principle And The Asymmetric Timeliness Of Averages

1a. One potential goal of earnings management is income smoothing. Briefly discuss why income smoothing might be a goal of management, including a discussion of incentives to smooth income. What techniques might be used to accomplish income smoothing beyond the selection of depreciation and inventory costing alternatives?

The Radical and the republican written by James Oakes, is the author’s deep political analyzation between two well-known figures, Abraham Lincoln and Fredrick Douglass. Oakes gives us the first context clue of what Lincoln and Douglass’s relationship will present to be, when they both had opposite approaches on how to abolish slavery permanently in 1850. Douglass sponsored the radical, Garrisonian reform, while Lincoln was an advocate for the overcautious political approach to problems and affairs. During the next 20 years, the 2 figure heads will shift into the same state of mind, with Douglass progressively identifying the necessity for political guiding rather than ideological purity and Lincoln shifting on issues of race and radical emancipation.

Such an intense focus has been placed on quarterly earnings as an indication of a company’s success by everyone from analysts to executives that ethics have for the most part been thrown out the window, sacrificed to the all important number, i.e. earnings per share. This is the theory in Alex Berenson’s book “The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America.” This number has become part of a game to be played, a figure to be manipulated – beat the number and Wall Street all but throws a parade, miss it and a company’s stock may be abandoned. Take into account the incentives that executives have to beat the number and one can find plenty of reasons to manage earnings.

Kimmel,Paul D,Weygand, J, Donald E. Kieso (2008). Accounting. 3rd ed. New York : George Hoffman. Page 1010.

Most economically, the important body of work is the role of conditional conservatism in markets. Indeed, there is a view that information needs of accountant is the main driver of the market demand for accounting conditional conservatism. At the present moment, US was the markets dominator to reflected in the accounting standards. However is if very difficult to predict how different US GAAP would be today in the absence of US markets.

When analysts question a firm’s earnings quality, it raises concerns regarding under or over aggressive accounting practices that may be allowing the firm to manipulate the earnings. Earnings quality is defined as the strength of the current earnings in being used to predict future earnings and cash flows. Since earning quality is indicative of future performance, analysts are more likely to address issues that have substantial impact on the earnings quality. An issue arises when the nature of the earnings is questioned. While permanent earnings are part of normal operations, any irregular, one time earnings can skew the earnings, making the firm look more profitable than it is. This is due to the inability to recreate similar one-time transactions that will give rise to such numbers. Investors prefer predictable

As stated in Exhibit 3, Earnings management is the managerial use of discretion to influence reported earnings. Within the accrual accounting system, managers have significant discretion with their firms’ accounting choices. Management has the ability to make choices that can opportunistically lead to higher or lower reported earnings. Richard 's and Ira Zar’s (CFO) actions would not change if these results were the result of GAAP flexibility because he violated the rules of accounting, the conceptual framework principle of neutrality in numerous ways to report the financial results that CA did under false pretenses. It would be one thing if CA garnered these results through legitimate business decisions versus using accounting tactics like changes in accounting estimates or outright fraud as in the use of the 35 day Month. The purpose of which was solely to allow CA to meet or exceed analysts’ estimates.

Since the 1980s, there has been a dramatic increase not only in the frequency of pro forma earnings but also on the magnitude (Alpert, 2000; Bradshaw and Sloan, 2002). According to Graham et al. (2005) managers believe that pro forma earnings is the most important performance measure. Managers support that pro forma earnings

Baruch Lev and Feng Gu authors of “The End of Accounting and The Path Forward for Investors and Managers” indicate that over the past 110 years, the structure and content of financial reports has not changed, and that the role that these reports play in influencing the decisions of investors has greatly diminished. Lev and Gu make a case that non-transaction events that are not captured by the financial reports such as those disclosed through 8-k filings with the Securities and Exchange Commission (“SEC”) have a greater impact on stock prices, and thus more useful to investors. In addition, they suggest that one of reasons for the decline in usefulness of financial reports stems from the increase of estimates that has made its way into these reports (Lev and Gu 2016).

By Thomas Ahrens (London School of Economics), and Christopher Chapman (University of Oxford), from The Contemporary Accounting Research Vol. 21 No. 2 (Summer 2004) pp. 271–301.

Atrill, P, McLaney, E, Harvey, D, Jenner, M 2008, Accounting: an introduction, 5th ed, PEARSON, Australia, pp191

After having read about both modern day conservatism and liberalism, I still feel more strongly towards liberalism. I believe that a stronger government in an economic sense can help a lot of people who come from struggling backgrounds, and i believe that government should be concerned in helping their people. Although I do believe that the government needs to help the people in some aspects, I believe that in some areas they need to leave the people alone. I don’t blindly believe everything that modern liberals agree with without doing some research, and in some cases I tend to side with the conservatives. While most liberals want to not focus so much on drug-related crimes, conservatives want a war on both drugs and pornography. Now while

Nowadays, as our economy is facing possible everyday crises, managers undergo an increasing pressure in order to keep their company 's earnings stable. Shareholders and analysts expect companies to meet forecasted goals and not to deviate from these. Especially, reliable companies are to report positive results and shall not present any 'surprises '. Managers therefore often turn to their accounting departments for help, whose job it then is to improve the bottom line by changing the information shown in financial

The literature on conservatism accounting is very limited. Watts (2003), has suggested that conservatism is related to debt contracts, while Gjesdal & Antle (2001) suggest that conservatism is the interaction between income measurement and dividend covenants. Even though conservatism may be most favorable, the result derives from shareholders trading off cash flows in different periods, not from the need to protect the interests of creditors.

The business environment appears to get smaller with each passing day. Therefore, accountants face troubles in remaining protected from the progressions that occur around the world (Diaconu and Coman 2006). Globalization hint at the regularly changing procedure of incorporation and connection among governments, individuals and organizations. The key three things that declare incorporate globalization venture, worldwide exchange and data innovation (Diaconu and Coman 2006). Globalization moves the world to another level and places it to more at the leading edge statures reliably. Outstandingly, globalization procedure have both negative and constructive effects on accounting (Godfrey and Chalmers 2007). This is unmistakable as in,