Acc 3 Cases

Case 1In the essay conducted by Flora Guidry , Andrew J . Leone and Steve thrill (l997 ) entitled wages-Based Bonus Plans and Earnings Management by telephone circuit organisation Unit Managers , tests the Fixed-Target Hypothesis , wherein it is hypothesized that sleep togetherrs make arbitrary accrual decisions to maximize their presently-term bon expends . The analyses conducted was base on concern unit-level rather than firm-level informationTheir study shows that , business unit manager bonus compensation is based solely on business unit salary . The mayhap conf utilize effects of long-term movement and buy in-based incentive compensation present in antecedent research are deficient . Using multiple measures of discretional accruals , they find evidence that those managers with grant- link incentives to mak e income-increasing discretionary accruals do so relative to managers with incentives to use accrual discretion to slack cabbage . To the extent that foreign financial inform represents an collecting of business unit financial reports the results highlight the importance of native detection as a determinant of external insurance coverage (Page 1Further , According to Paul M . Healy and James M . Wahlen in A Review of the Earnings Management Literature and Its Implications for trite Setting (l999 , studies remove been conducted and examined veridical compensation contracts to identify managers earnings management incentives . The evidence report in these studies is consistent with managers using accounting judgment to plus earnings-based bonus awards . Those divisional managers for co tone endingal multinational companies are in all probability to send back income when the earnings target in their bonus architectural send off will not be met and when they are enti tled to the let the cat out of the bag nig! h bonuses permitted under the plan (Page 376 . Moreover , the studies show that firms with punks on bonus awards are more possible to report accruals that posit income when that cap is reached than firms that have comparable performance but which have no bonus cap (Page 376Studies show that compensation and impart contracts source some firms to manage earnings to increase bonus awards , change job security and extenuate possible irreverence of debt agreements .

theless , whether this style is widespread or infrequent , there is rattling belittled evidence and no evidence on which accruals are most credibl y being used to manage earnings for contracting purposes (Page 377However , tests provide convincing evidence that some firms do manage earnings when they anticipate reporting a loss , reporting an earnings decline or falling short of investor s expectations (page 379 . new(prenominal) findings indicate that earnings management occurs for a variety of reasons , including influencing bank line market perceptions , to increase management s compensation , to reduce the likelihood of violating lending agreements , and to avoid regulatory intervention (Page 380Internal auditors were more likely to consider fraud when income surpassed , than when it fell short of , expectations . They also tire fraud in mind when debt covenants were restrictive in a situation where income was better than expected . In this circumstance , managers exponent beef up earnings to maintain a picky ratio of assets to liabilities required by a lien holder . It was also discovered internal auditors con sidered fraud to be break up more probable if incom! e surpassed expectations and managers had an...If you want to get a pie-eyed essay, order it on our website: BestEssayCheap.com

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