Ways of managing earnings . Esther Nyamai

manager can manage its earnings through various techniques which are:

i. Timing sales of securities that have gained value: The company can sell a portfolio security that has an unrealized gain and can report the gain as operating earnings if it is required

ii. Timing sales of securities that have lost value: If the manager wants to show lower earnings then he can sell the security that has an unrealized loss and report the loss in operating earnings.

iii. Change of holding intent, write-down “impaired securities

Management can manage earnings through change of its holdings from available to sale securities to trading securities and vice versa. T
anage earnings through change of its holdings from available to sale securities to trading securities and vice versa. This would have the effect of moving any unrealized gain or loss on the security to or from the income statement

iv. Write-down “impaired securities: Securities that have an apparent long term decline in fair market value can be written down to the reduced value regardless of their portfolio classification. 

v. “Throw out” a problem child:
To increase the earnings of future period, the company can sell the subsidiary which is not performed well i.e. “the problem child” subsidiary may be “thrown out”. Earnings can be managed through sell the subsidiary, exchange the stock in an equity method subsidiary and spin off the subsidiary.
A gain or loss is reported in the current period statement when a subsidiary is sold.