Net Income Is a Key Number for Shareholders,creditors,and Analysts Alike

question 47

Essay

Net income is a key number for shareholders,creditors,and analysts alike.Indeed,analysts' projections of net income for a company are viewed as a standard a company must achieve for a period of time.Failure to achieve this standard can have devastating effects on a company's stock price and its management.
The importance of net income in the eyes of analysts and others can tempt managers to take steps to ensure that the appropriate level of net income is achieved.The process of manipulated net income to achieve a desired level of earnings is referred to as earnings management.
Required:
List and explain the economic motivations for earnings management.

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Definitions:

Scientific Psychology

The science-based practice of understanding mental functions, behaviors, and processes through empirical research and experimentation.

Laboratory

A controlled setting where scientists and researchers conduct experiments, tests, and research to gather data, test hypotheses, and develop new products or knowledge.

Cognitive Abilities

Sources of individual differences in performance on cognitive tasks, including factors such as intelligence, memory capacities, attentional focus, knowledge base, strategies, and processing speed.

Plato

An ancient Greek philosopher who made foundational contributions to Western thought, particularly in areas of ethics, politics, and metaphysics.