Activity 2

Activity 2

Topic: Earnings Management: The Continuum From Legitimacy To Fraud

Problem Statement

Judgmental on the basis of financial reporting comes under Earnings management. It also focuses on structural transactions in order to amend or change the financial report of the company in order to show greater profit to the stakeholder by ether misleading them or influencing them based on the altered company's economic performance in front of stakeholders. It is a planned altering of reporting production and investment decisions around the bottom line of the company for favorable impact.

Earning management is a strategy used by the management to deliberately manipulate earnings. However, total earned amount may match with pre determine targets and budgets. Companies usually will not permit its cash and cash equivalent to be out of balance. They always ensure that they are balanced through audit operations. It appears to be far better than having bad or good earnings and operating results. Professional organizations usually retain audit staff to verify company account results on regular basis. Hence, accounting regulations must be up to international standards. Duplication of any financial document shouldn't be allowed within the organization. Such duplications have been used for fraudulent purposes.

Questions

Can the problem be solved through research?

Is the research problem one that is important?

Does the researcher have the knowledge and skills to conduct the study?

Is sufficient time available to conduct the study?

Can the researcher obtain the necessary data needed for the study?

Introduction

EBIT to the number of shares and the earnings to number of shares reflect the theoretical enrichment, a shareholder holding a share, in the course of a year. The benefit is in fact the net share accruing to the shareholders of the wealth created by the firm during that year. The earnings per share are subject to a very precise calculation, the analyst usually corrects net income group share published Exceptional operations.

Earnings per share, is one of the key financial indicators used to assess companies on the stock market, compared to the investment attractiveness of companies and their effectiveness. EPS is one of the few financial indicators, calculation rules are documented in a number of financial reporting standards (IAS, GAAP)

Literature Review

The value of EBIT to number of shares and the earnings per shares are calculated only taking into account the actual outstanding shares, called the base. In order to take into account the possible effect of dilution of capital, calculated as diluted EPS. In its calculation of all equity-linked securities are analyzed as if their conversion is done except when the conversion is not lower, but on the contrary, increase EPS. It should be taken into account as there will also share and additional revenue the company received from option exercise (Zikmund, Babin, Carr & Griffin, 2010).

The investment is made to increase the wealth of the owners of the company and therefore, the value of the company. Increasing value means that the profitability investment is positive. Clear from the outset that the measure of profitability has meaning that depending ...