Problem Two: Earnings Management

question 35

Essay

Problem Two: Earnings Management
Earnings management can be defined as the "purposeful intervention by management in the earnings process, usually to satisfy selfish objectives" (Schipper, 1989).
Earnings management techniques can be separated into those that are "cosmetic" (without cash flow consequences) and those that are "real" (with cash flow consequences).
The management of a company wishes to increase earnings this period.
List three "cosmetic" and three "real" techniques that can be used to achieve this objective and explain why they will achieve the objective.

Learn about leverage and its impact on real estate investment profitability.

Understand different types of real estate investments and their characteristics.

Comprehend the concept of liquidity and how it affects real estate investments.

Identify the tax implications and benefits associated with real estate investments.

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Definitions:

Unexpectedly High Earnings

Unexpectedly high earnings refer to a company's reported profits that significantly exceed analysts' forecasts or the company's own guidance.

Abnormal Price Change

A significant variation in the price of a security or trading instrument that cannot be explained by market fundamentals and might be attributed to extenuating circumstances or events.

Selection Bias

Selection bias is a distortion in statistical analysis resulting from the method of collecting samples, potentially causing results to not be representative of the wider population.

Market Efficiency

The degree to which market prices fully reflect all available information and expectations, enabling securities to be priced appropriately.