Question

How and why do managers manage earnings?

Answer 1

Managers will be managing the earnings through making different types of budgets and they will be trying to compare their actual performance with the standard performance and they will be also adopting various kinds of capital budgeting methods in order to determine the best possible method which will be adopted by the company in order to maximize their rate of return because the ultimate purpose of the manager is to maximize the organisational wealth and maximize the value of the shareholders.

Managers will also be managing the earnings by properly controlling the deviations which are arising out of various projects and working upon various measures in order to control those patients so that the goals of finance can be raised efficiently and effectively and they will be trying to ensure effective use of Assets and other resources also.

Manager are managing the earnings because they are responsible for maximization of the value of organisation and maximization of the value of shareholders because managers are agents for the shareholders and they are required to protect the interest of the shareholders so they will be managing the earnings in order to enhance the share price and help the company achieve their objectives and they can also sometimes manage it through window dressing in order to save their respective jobs.