Which of the following best defines the term earnings management?
A) It is the intervention by the management in the internal financial reporting process, with the intent of boosting the earnings of an organization.
B) It is the purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain.
C) It is the legitimate alteration of internal reports by the management to influence contractual outcomes that depend on reported accounting numbers.
D) It is a systematic management of earnings of an organization by its external shareholders, with the intent of increasing future profits.

Question

Quizplus · Accepted Answer

Earnings management refers to the manipulation of financial reporting by management to either make the company appear more profitable or to achieve personal gain. Option B best represents this definition. Options A, C, and D represent legitimate practices within financial reporting and do not necessarily involve manipulation or unethical behavior.

Which of the Following Best Defines the Term Earnings Management