Earning management

1. INTRODUCTION

Earnings  refers to the profits of a company which is represented by the bottom line of the income statement and a summary item in financial statements.
Importance  of  earnings  management.

1.Earnings are the vital item in financial statement because it represents to what extent the company engaged in value added activities.

2.Earnings also indicate the signal of direct resource allocation in capital market. Investors and analysts look to earnings to determine the attractiveness of a particular stock. The company’s stock is measured by the present value of its future earnings. Companies with poor earnings prospects will typically have lower share prices than those with good prospects. A company’s ability to generate profit in the future plays a very important role in determining its stock’s price.