Companies often try to keep accounting earnings growing at a relatively steady p

Question

Companies often try to keep accounting earnings growing at a relatively steady pace in an effort to avoid large swings in earnings from period to period. They also try to manage earnings targets.  Reflect on these practices and discuss the following in your discussion post.

Are these practices ethical?

What are two tactics that a financial manager can use to manage earnings?

What are the implications for cash flow and shareholder wealth?

Using the financial balance sheet as displayed in the text, provide an example of how purchasing an asset or issuing stocks or bonds could potentially impact earnings targets

Explanation / Answer

1.Are these practices ethical

Employee ethics cover a diverse landscape of practices, some with legal implications, all of which the small business owner must be aware. Company policies and mission, employer demeanor and actions provide a working template for employees to use as they conduct their day-to-day business. Develop a template for an ethical workplace culture by defining what constitutes ethical practices. Business values and ethics policies guide employee ethical practices.

Justice Practices
The Golden Rule is a succinct guide for just practices in the workplace. Small business owners can collaborate with staff in defining what constitutes justice. Apply that definition to every sector and situation in a small business operation. Criteria for justice applies to all people and all situations, according to Charles D. Kerns in "Creating and Sustaining an Ethical Workplace Culture." Employees put ethical guidance for justice on the job into practice by treating each other and all clients and customers fairly and equally. Anti-discrimination laws are examples of just employee practices.

Integrity Practices

Integrity requires the courage to do what is right despite popular opinion. Employees who practice integrity in the workplace support what is morally right and what the business represents to its staff and to its customer base. Members of a sales staff, for example, truthfully represent a product line or services. They keep their word to their clients because it is the right thing to do and because their word is the company's word. Integrity requires consistent practice.

2. two tactics that a financial manager can use to manage earnings

This study examines an aspect of earnings management that I refer to as audit management. I define audit management as a client's strategic use of techniques (e.g., baiting tactics) to prevent auditors from discovering earnings management during the audit. Specifically, I examine whether two baiting tactics, diversionary statements and distracting errors, affect an auditor's ability to uncover an accounting error used to manage earnings. Auditors performed analytical review on financial statements that contained an earnings management error (i.e., an intentional error that results in the client meeting an earnings target). I manipulated whether management provided a diversionary statement that explicitly identified risk in other areas of the audit, and whether management seeded easier, distracting errors into those other areas, both of which were designed to lure the auditor away from the earnings management error. I found that when auditors were intentionally directed to error free accounts they were unlikely to uncover an earnings management error elsewhere in the financial statements. On the other hand, auditors were most accurate in identifying earnings management when they were directed to audit areas that contained distracting errors. These results suggest that managers can use certain baiting tactics to strategically manage the outcome of the audit, but that, in some circumstances, baiting tactics may actually make auditors more likely to uncover managed earnings.

3.What are the implications for cash flow and shareholder wealth

When marketers do their job well, it results in the sale of their firm

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