Question - Earnings Management is defined as the planned timing of revenues, expenses, gains and losses to smooth out earnings over a number of periods. It may include premature recognition of income or expenses or deferral of the same for the purpose of manipulating a company's results.
Required
1. Consider the issues that lead to earnings management and in particular various techniques that are used, such as cookie jars, discretionary accruals, big bath, shrink the ship, big bet on future, flushing, throwing out problem child, sale and leaseback.
2. How might auditors overcome such practices?
3. Is it appropriate that auditors have rarely been held to account for the company's failure?