Healy and Wahlen State That One Type of Earnings Management

question 53

Essay

Healy and Wahlen state that one type of earnings management occurs when managers use judgement in financial reporting to alter financial reports in order to mislead some stakeholder about the economic performance of the company.Earnings management is a consequence of a judgement by management which results in lower economic information content of the financial reports.
Discuss four reasons that discourage managers from practicing earnings management.

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Definitions:

Reticular Formation

A network of neurons located in the brainstem, involved in various functions including regulation of wakefulness and sleep.

Midbrain

A central part of the brainstem that plays an important role in vision, hearing, motor control, sleep/wake, arousal, and temperature regulation.

Medulla

The base of the brainstem; it controls vital life-sustaining functions like heartbeat, breathing, blood pressure, and digestion.

Corpus Callosum

A wide band of nerve fibers connecting the two hemispheres of the brain, facilitating communication between them.