盈利质量和盈余管理
Earnings Management and Earnings Quality 1. What is Earnings Management? (Bryan Hall’s Webpage) Earnings management is defined by accounting literature as “distorting the application of generally accepted accounting principles.” Arthur Levitt, the old SEC Chairman, defined earnings management as “practices by which earnings reports reflect the desires of management rather than the underlying financial performance of the company.” Earnings management is often defined as the planned timing of revenues, expenses, gains and losses to smooth out bumps in earnings. In most cases, earnings management is used to increase income in the current year at the expense of income in future years. For example, companies prematurely recognize sales before they are complete in order to boost earnings. Earnings management can also be used to decrease current earnings in order to increase income in the future. The classic case is the use of "cookie jar" reserves, which are established, by using unrealistic assumptions to estimate liabilities for such items as sales returns, loan losses, and warranty returns. Managers engage in income smoothing activities because they know that volatile earnings streams typically lead to lower market valuations. Many successful management teams believe that the strategic timing of investments, sales, expenditures, and financing decisions is an important and necessary strategy for managers committed to maximizing shareholder value. Investors are dissatisfied with the management of earnings; however, investors become enraged when quarterly or annual earnings forecast are not met by firms. Therefore, investors and the public view minor earnings management as acceptable and an everyday business practice. In response to public complaints and concern for earnings management, the SEC has issued bulletins to help prevent earnings management. 2. The Public Perception of Earnings Management Earnings management has a negative effect on the quality of earnings if it distorts the information in a way that it less useful for predicting future cash flows. Within the Conceptual Framework, useful information is both relevant and reliable. However, earnings management reduces the reliability of income, because the income measure is biased (up or down) and/or the reported income that is not representationally faithful to that which it is supposed to report (e.g., volatile earnings are made to look more smooth). The term quality of earnings refers to the credibility of the earnings number reported. Companies that use liberal accounting policies report higher income numbers in the short-run. In such cases, we say that the quality of earnings is low. Similarly if a nonrecurring gain increases income, but the gain is obviously not sustainable, then the quality of earnings is considered low. For the markets to work efficiently, it is vital that investors be able to trust the earnings numbers of the companies in which they have chosen to invest their capital. Recent studies have shown that the investing public believes that the occurrence of earnings management is both widespread and pervasive in the financial statements of corporations worldwide. However, it is interesting to note that the investing public does not necessarily view minor earnings management as unethical, but in fact as a common and necessary practice in the everyday business world. It is only when the impact of earnings management is great enough to affect the investors’ portfolio that they feel fraud has been committed. 3. The Impact of Earnings Management Public perception about the widespread occurrence of earnings management is affecting the public’s confidence in external financial reporting. The practice of earnings management damages the perceived quality of reported earnings over the entire market, resulting in the belief that reported earnings do not reflect economic reality. Investors rely on financial information provided by the company to make their investment decisions, and when investors believe they are being given meaningless information they become wary of trusting the companies they have invested in. Investors’ apprehension will eventually lead to unnecessary stock price fluctuation. As investors lose faith in reported earnings, they are forced into a guessing game concerning the actual financial position of a company. This uncertainty ultimately has the potential to undermine the efficient flow of capital thereby damaging the markets as a whole. 4. Incentives to Manage Earning A. EXTERNAL FORCES o Analyst Forecasts - Companies are under extreme pressure to meet analysts’ earnings estimates in order to prevent large drops in their stock price. o Debt markets and contractual obligations - Companies depend on achieving certain earnings figures to obtain access to debt markets, or even to meet their current debt covenants and other contractual obligations. o Competition - There is pressure in highly competitive industries to stay at the top of the industry in terms of revenue or market share. Companies may want to manage these figures to stay above competitors. B. INTERNAL FACTORS o Potential mergers - If the company is hoping to enter a merge, a strong financial position will make it look much more attractive to other companies. o Management Compensation - Stock option and bonus programs that are tied to earnings performance will provide incentive for managers to manipulate earnings numbers to boost their own compensation. o Planning and budgets - Sometimes companies will establish unrealistic plans and budgets to push managers to overachieve. This can provide pressure for management to boost earnings to meet the company’s own expectations. o Unlawful transactions - Some companies even use earnings management to cover up their own unlawful transactions such as embezzlement, fraud, misappropriation, and bribery. C. PERSONAL FACTORS o Personal bonuses - Some compensation policies are heavily weighted towards incentives, and individuals hope to receive a bonus based on their good performance. o Promotions and job retention - Fudging numbers to make performance look better may lead to personal promotions, or even help to retain an employee’s current job. 5. SEC Response to Earnings Management Recently, several staff accounting bulletins concerning earnings management were released by the SEC and many more such regulations have been promised in the future. These bulletins and promises of more to come are partly the result of former SEC chairman Arthur Levitt’s crusade to eradicate the problem of earnings management in United States companies. Recent publicity of high profile earnings management from some of the nation’s most elite companies, combined with a sagging economy have heightened investor’s fears about the occurrence of earnings management. Throughout the last few years of the chairman’s term Mr. Levitt widely publicized his beliefs about the pervasiveness of earnings management and his intention to address these issues. This crusade resulted in a torrent of staff accounting bulletins beginning with the issuance of SAB 99 regarding Materiality in August of 1999. This bulletin attempts to clarify an auditor’s appropriate scope of materiality while conducting an audit. Since a favorite practice of corrupt management is to justify earnings management by claiming it is immaterial, this statement is particularly helpful to current and future auditors. SAB 100 was released in November of 1999 in an attempt to eradicate the common earnings management practice of taking a “big bath” through the use of restructuring and impairment charges. Another favorite component of earnings management was addressed in March of 2000 when SAB 101A concerning Revenue Recognition was released. The most common form of earnings management is the intentional manipulation of revenue recognition, therefore this statement and its later counterpart SAB 101B are also very helpful to an auditor attempting to snuff out earnings management. Finally, July of 2001 saw the issuance of SAB 102 concerning Loan Loss Allowances, another preferred tool of earnings management. These bulletins will not completely prevent earnings management, and therefore they will not be the last of their kind. Earnings management will remain an important problem facing the markets as long as there is pressure on companies and individual managers to perform. However, careful auditing procedures and continuing attentiveness by the SEC and other regulatory bodies will help reduce the occurrence of earnings management into the future. 6. Types of Earnings Management and Manipulation (by Scott McGregor) a. "Cookie-jar" Reserves The accrual of expenses is to reflect the period in which the expense was incurred. For example, if a firm hires a consultant to perform a particular activity, it should reflect the expense related to that activity in the period in which it is incurred, not when the bill is paid or invoice received. In many cases, the accrual of expenses, or reserves in particular industries such as insurance and banking, are based on estimates. As such, the estimates have varying degrees of accuracy. During times of strong earnings, the firm establishes additional expense accruals and subsequently reduces the liability to generate earnings when needed in the future - pulling a "cookie from the jar". b. Capitalization practices-Intangible ...
盈利质量和盈余管理