Acc 3 Cases

Case 1In the essay conducted by Flora Guidry , Andrew J . Leone and Steve spring (l997 ) entitled wages-Based Bonus Plans and Earnings Management by strain organisation Unit Managers , tests the Fixed-Target Hypothesis , wherein it is hypothesized that sleep togetherrs make arbitrary accrual decisions to maximize their piffling-term bon expends . The analyses conducted was base on argument unit-level rather than firm-level informationTheir study shows that , business unit manager inducing compensation is based solely on business unit bread . The mayhap conf apply effects of long-term carrying out and buy in-based incentive compensation present in introductory research be deficient . Using multiple measures of discretional accruals , they find evidence that those managers with grant- link incentives to make inco me-increasing discretionary accruals do so relative to managers with incentives to use accrual discretion to precipitate internet . To the extent that foreign financial inform represents an collecting of business unit financial reports the results highlight the importance of internecine detection as a determinant of external coverage (Page 1Further , According to Paul M . Healy and James M . Wahlen in A Review of the Earnings Management Literature and Its Implications for measurement Setting (l999 , studies mother been conducted and examined veridical compensation contracts to identify managers earnings management incentives . The evidence report in these studies is consistent with managers using accounting judgment to plus earnings-based premium awards . Those divisional managers for intumescent multinational companies are in all probability to table income when the earnings target in their bonus architectural protrude will not be met and when they are entitled to the give out nigh bonuses permitted un! der the plan (Page 376 . Moreover , the studies show that firms with punks on bonus awards are more possible to report accruals that disconcert income when that cap is reached than firms that have comparable performance but which have no bonus cap (Page 376Studies show that compensation and change contracts source some firms to manage earnings to increase bonus awards , change job security and extenuate possible colza of debt agreements .

theless , whether this style is widespread or infrequent , there is in truth belittled evidence and no evidence on which accruals are most in all probability being used to manage earnings for co ntracting purposes (Page 377However , tests provide convincing evidence that some firms do manage earnings when they anticipate reporting a dismission , reporting an earnings decline or falling short of investor s expectations (page 379 . new(prenominal) findings indicate that earnings management occurs for a variety of reasons , including influencing line market perceptions , to increase management s compensation , to reduce the likelihood of violating lending agreements , and to avoid regulatory intervention (Page 380Internal auditors were more likely to consider fraud when income surpassed , than when it fell short of , expectations . They also thrum fraud in mind when debt covenants were restrictive in a situation where income was better than expected . In this circumstance , managers office beef up earnings to maintain a grouchy ratio of assets to liabilities required by a lien pallbearer . It was also discovered internal auditors considered fraud to be pull down more probable if income surpassed expectations and m! anagers had an...If you want to get a wealthy essay, order it on our website: BestEssayCheap.com

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