Within a continuously competitive global business environment, publicly held companies face constant pressure to generate and...

Within a continuously competitive global business environment, publicly held companies face constant pressure to generate and report positive financial results. Unfortunately, some leaders may be tempted to report improper or misleading results in order to meet those expectations. Examine the critical information that a financial statement reader can learn from the contents of the income statement, the balance sheet, and the statement of cash flows. Discuss how an integrated analysis of the statements might help in assessing earning quality or detecting earnings management. list references for the research.

Expert Solution

Ans-Please note that real earnings management is a strategy used by management of a company to purposely manipulate the company’s earnings so that the figures match a forecasted target; this is used for the purpose of income smoothing. Companies try to keep the figures as stable as possible without having to be categorized as good or bad earnings.When reviewing the balance sheet, income statement, and cash-flow statement, there are
red flags to look for that could be indicators of possible trouble. Also CFO’s and CEO’s are hold accountable for making sure that their financial statements are presented correctly. The increase in criminal and civil penalties to executives for practicing fraudulent accounting by filing false statements is not the same as them practicing real earnings management which is not likely to result in
these penalties due to it being considered an internal operational process.

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