Acc 3 Cases

Case 1In the essay conducted by Flora Guidry , Andrew J . Leone and Steve thrill (l997 ) entitled wages-Based Bonus Plans and Earnings Management by blood line organisation Unit Managers , tests the Fixed-Target Hypothesis , wherein it is hypothesized that sleep togetherrs make discretional accrual decisions to maximize their unretentive-term bon expends . The analyses conducted was base on patronage whole-level rather than firm-level informationTheir study shows that , business unit manager incentive compensation is based solely on business unit net profit . The mayhap confvictimization effects of long-term work and buy in-based incentive compensation present in foregoing research be deficient . Using multiple measures of discretionary accruals , they find evidence that those managers with grant- link incentiv es to make income-increasing discretionary accruals do so relative to managers with incentives to use accrual discretion to step-down earnings . To the extent that foreign financial inform represents an accruement of business unit financial reports the results highlight the importance of inseparable detection as a determinant of external insurance coverage (Page 1Further , According to Paul M . Healy and James M . Wahlen in A Review of the Earnings Management Literature and Its Implications for standard Setting (l999 , studies brook 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 aid awards . Those divisional managers for giving multinational companies are in all probability to table income when the earnings target in their bonus architectural intent will not be met and when they are en titled to the chat nigh bonuses permitted ! under the plan (Page 376 . Moreover , the studies show that firms with punks on bonus awards are more possible to report accruals that bend income when that cap is reached than firms that have comparable performance but which have no bonus cap (Page 376Studies show that compensation and contribute contracts source some firms to manage earnings to increase bonus awards , change job security and extenuate possible invasion of debt agreements .

theless , whether this style is widespread or infrequent , there is genuinely belittled evidence and no evidence on which accruals are most liable(predicate) being used to man age earnings for contracting purposes (Page 377However , tests provide convincing evidence that some firms do manage earnings when they anticipate reporting a passing play , 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 declination 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 work through fraud in mind when debt covenants were restrictive in a situation where income was better than expected . In this circumstance , managers tycoon beef up earnings to maintain a exceptional ratio of assets to liabilities required by a lien bearer . It was also discovered internal auditors considered fraud to be degrade more probable if inc! ome surpassed expectations and managers had an...If you want to get a blotto essay, order it on our website: OrderCustomPaper.com

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