'Earnings management' involves deliberate actions taken by management to meet earnings objectives.'Profit smoothing' is:
A) an acceptable accounting policy, just like earnings management.
B) an acceptable accounting policy, unlike earnings management.
C) the reverse of earnings management.
D) a form of earnings management aimed at reducing periodic fluctuations in earnings.

Question

Quizplus · Accepted Answer

Profit smoothing is a form of earnings management aimed at reducing fluctuations in earnings. It involves taking steps to shift profits from one period to another in order to present a more stable and predictable pattern of earnings growth. While it is technically a form of earnings management, it is considered more acceptable than other forms because it does not involve manipulating earnings to meet specific targets or mislead investors.

'Earnings Management' Involves Deliberate Actions Taken by Management to Meet