Managing Corporate Earnings

Part 1 (ONE):

Please respond to the following:

• • Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability.
• • Assess the ethical complexities related to managing corporate earnings, determining whether or not investors and stakeholders are accepting of this behavior. Assuming that you are in a position to make corporate financial decisions, how likely are you to engage in earnings management and why?
• • Please provide one citation/reference for your initial posting that is not your textbook.  Please do not use Investopedia or Wikipedia.

*** 150-250 WORDS *** 

Part 2 (TWO):

Respond to this classmate’s discussion below using 50+ words.

“Evaluate the environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations, indicating the potential long- term risks to financial performance and sustainability. 

Some environmental factors that contribute to corporate management’s need to manage corporate earnings to align with market expectations include the mission of the institution (the corporation), the values and the goals that individuals that work for the corporation have, as well as the kinds of demands the customer has.

“Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits” (USSIF)

Assess the ethical complexities related to managing corporate earnings, determining whether or not investors and stakeholders are accepting of this behavior. Assuming that you are in a position to make corporate financial decisions, how likely are you to engage in earnings management and why?

What makes managing corporate earnings tricky is how the person managing the earnings decides to report the outcome. That is, it can be hard or impossible for people that read financial statements (such as investors or shareholders) to know why the manager made certain accounting decisions. Some believe that it is unethical due to the fact that certain financial reporting can distort the reality of what is really going on within a company, which is misleading to investors. If it were me, I would probably have to use mangerial discretion when doing financial reports.

“U.S. Generally Accepted Accounting Principles (GAAP) allow for managerial discretion in reporting decisions, and many people believe that using that discretion to achieve earnings objectives is an integral part of doing business and protecting the interests of shareholders.” (SF Magazine)”