财务会计理论(司可脱)ppt文件11_scott_im_ch11

2006 Pearson Education Canada Inc.,11-1,Chapter 11,Earnings Management, 2006 Pearson Education Canada Inc.,11-2,Earnings Management (EM),DefinitionChoice of accounting policies to achieve some specific manager objectiveCan Also Include Management of Real VariablesR&D, advertising, maintenanceTiming of disposals, 2006 Pearson Education Canada Inc.,11-3,Earnings Management Techniques,Revenue RecognitionAccounting Policy ChangeTiming of Adoption of New StandardsWriteoffs, Asset Sales, ProvisionsAccruals (Discretionary)Direct Charges to Retained Earnings, 2006 Pearson Education Canada Inc.,11-4,Patterns of EM,BathIncome MinimizationIncome MaximizationIncome Smooth, 2006 Pearson Education Canada Inc.,11-5,Reasons For EM,Financial Reporting To meet investors earnings expectationsTo credibly communicate inside information about earnings expectations (“Good EM”)ContractualBonus Healy (1985)Debt covenant Sweeney (1994)Political Jones (1991)IPOs, 2006 Pearson Education Canada Inc.,11-6,Review of Arguments for “Good” EM,Securities & Labour Market Argument Manager “foolish” to report higher earnings than can be maintainedWhy? accruals reverseManager is best placed to know persistent earnings (inside information)Blocked communicationEM is credible way to release blocked, inside information, 2006 Pearson Education Canada Inc.,11-7,Review of Arguments for “Good” EM, Contd.,Contracting ArgumentTo give firm some flexibility in the face of rigid, incomplete contractsConcept of an incomplete contractContract rigidityContract violation is costly, 2006 Pearson Education Canada Inc.,11-8,“Bad” EM,Financial Reporting PerspectiveHanna, (1999)Investors and analysts look to core earnings, ignoring extraordinary and non-recurring itemsImplies manager not penalized for non-core charges, such as writedowns, provisions for restructuringBut current non-core charges increase core earnings in future years, through lower amortization and absorption of future costs, 2006 Pearson Education Canada Inc.,11-9,“Bad” EM, Contd.,Hanna, contd.As a result, managers tempted to “overdose” on non-core charges, thereby putting earnings “in the bank” (also called cookie jar accounting)Note securities market reactionHanna found evidence that market uses frequency of such charges as proxy for their misuse-lower ERC when greater frequencyExample: Nortel, 2004 (text, Section 11.6.1), 2006 Pearson Education Canada Inc.,11-10,“Bad” EM, Concl.,Contracting PerspectiveOpportunistic bonus maximizationHealy (1985)To avoid debt covenant violationsDechow, Sloan, and Sweeney (1996), 2006 Pearson Education Canada Inc.,11-11,Do Managers Accept Securities Market Efficiency?,PerhapsPoor disclosure enables earnings management even if markets efficientPerhaps NotTheory and evidence that securities markets may not be fully efficientPro-forma earningsSchrand and Walther (2000), 2006 Pearson Education Canada Inc.,11-12,Implications For Accountants,Improved DisclosureSarbanes-Oxley, 2002; CICA Handbook, Sections 1100 and 1400, 2003Reporting effects on core earnings of previous writeoffs, 2006 Pearson Education Canada Inc.,11-13,Earnings Management at General Electric,Text, Chap. 11, Q. 9EM DevicesAssumed rate of return on pension fundsRestructuring chargesAcquisitions, sales of divisionsConservative accounting practicesSales of leased aircraftAllocation of goodwill on purchase of subsidiaries, 2006 Pearson Education Canada Inc.,11-14,Earnings Management at General Electric, Contd.,Reported Net Income (Millions)2004$16,5932003 15,0021002 14,1182001 13,6842000 12,7351999 10,7171998 9,296,1997 8,2031996 7,2801995 6,5731994 4,7261993 4,3151992 4,725, 2006 Pearson Education Canada Inc.,11-15,Earnings Management at General Electric, Concl.,EM Devices Used In Harmony to Report Steadily Increasing EarningsSecurities Market Efficiency?Given complexity and diversity of GE, even analysts cannot understand whole company?“Good” or “Bad” EM at GE?If analysts cannot figure GE out, role for management to credibly reveal earnings expectations by EM, 2006 Pearson Education Canada Inc.,11-16,Earning