Examine the concept of earnings management


Problem: Examine the concept of earnings management. Determine how it can impact the quality of earnings.

Consider the following: Significant reversals of discretionary accruals in the fourth quarter may be one indicator of earnings management or smoothing of income.

Analyze reasons companies employ this technique.

1. Determine the best reason to employ this technique and defend your answer.

2. Evaluate the impact of earnings management on financial markets and stockholder confidence.

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