What is the problem with earnings management?

The pressure to meet earnings expectations is high, but earnings management results
in a distorted view of a company's performance. In an attempt to eliminate fraud,
securities laws in the United States try to severely limit corporate management from
promising a specific level of future earnings.

What are the four patterns of earnings management?

The major patterns of earnings management include “taking a bath”, income

minimization, income maximization, and income smoothing. It is important to note that
managers can be motivated by a variety of earnings management patterns but that
these patterns may often come into conflict.

What are the disadvantages of earnings management?

The disadvantages of earnings management include decreased operational

performance such Electronic copy available at: https://ssrn.com/abstract=3000163 Page
4 Paulina Sutrisno 67 Acc. Fin. Review 2 (2) 64 – 72 (2017) as a lower return on assets,
lower return on equity, lower lower cash flows, earnings per share, and a

What are the types of earning management?

There are two key types of earnings management: adjusting individual accounting

policies and using different accrual methods.

What are examples of real earnings management?

Examples of RM include cutting prices towards the end of the year in an effort to
accelerate sales from the next fiscal year into the current year, delaying desirable
investment, and selling fixed assets to affect gains and losses, all in an effort to boost
current period earnings.