Parsing Earnings Management

This month, two articles share the Millennium Series spotlight as we focus on earnings management. The subject has received a lot of attention from regulators and the media; our authors try to get to the root causes of the phenomenon.

In “Twenty Pressures to Manage Earnings”, author James R. Duncan provides a taxonomy of the pressures that lead managers to inappropriately manage earnings. He breaks them down into external forces, such as analysts’ estimates and contractual obligations; cultural forces, such as management compensation and corporate oversight; and personal forces, such as the desire for a promotion or the fear of losing one’s job. Although these factors can create pressure for an individual to manage earnings, the author holds out hope that such pressures can be directed toward improved compliance and positive results.

In Auditors and Earnings Management authors Scott B. Jackson Marshall K. Pitman discuss the role of auditor preventing inappropriate management. They contend that must be understood context incentives for managers to cross line. also talk with refreshing frankness about methods individuals can employ manage earnings. use knowledge as a starting point detecting abuse.

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