Earnings management is the planned timing of revenues, expenses, gains and losses to smooth out bumps in net income. In managing earnings, companies' actions vary from being within the range of ethical activity, to being both unethical and illegal attempts to mislead investors and creditors. Develop a discussion around the following questions:
- What are some reasons why a company might want to overstate its earnings?
- What are some reasons why a company might want to understate its earnings?
- What are some techniques a company could use to overstate or understate its earnings?