Motivations for manipulating management net profit accounting

Abstract

Earnings management techniques are used to alter financial statements, either to mislead stakeholders on the performance of a firm or to influence contractual outcomes that depend on the accounting figures. This article analyzes the main motivations that lead company executives to apply earnings management practices. A review of accounting literature was performed and 4 groups of motivations were found: (1) contract; (2) policies and regulations; (3) valuation; and (4) taxes. The reasons for committing an extreme form of earnings management, accounting fraud, are also discussed. Identifying of some of these motivations within an organization may be useful to understand and anticipate management decisions and firm behavior in the face of certain political, economic and financial scenarios.