A Challenge to Business Leaders to End Earnings Management

Abstract

It is time for users of corporate financial statements to demand an end to abusive earnings management (EM). EM has persisted for decades as Accrual-based and Real EM. Both flourish inside vague accounting principles and under the veil of corporate secrecy. The existence of EM is irrefutable; it is well-documented in professional and academic literature. What is missing from the literature are simple, commonsense strategies for eliminating EM or rendering it harmless. EM is bad for our financial system for many reasons. When business leaders abandon EM or use it sparingly, financial reporting will increase in quality.