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Accounting theories and practices

Accounting theories and practices

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Published by daniel Sbstn

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Published by: daniel Sbstn on Aug 23, 2009
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11/03/2015

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Healy observes that manager have info on the firm’s net income
before EM.

Based on PAT where it is to explain and predict managers’ choice of
accounting policies is an extension of the bonus plan hypothesis
which state that managers will maximize current earnings. It is
known as bonus schemes which may have bogey and cap.

Bogey- bonus is zero. The lower limit of reported earning. Cap-
highest limit of reported earning.

NI between bogey and cap – bonus increase linearly.

NI below bogey – no bonus.

NI above cap – bonus constant.

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