Earnings management is a term which acts as a substitute for creative accounting. Trying to manipulate the earnings which are reported by the managers of a company, by taking help of some specific accounting process, is termed as earnings management. The company does so to influence its earnings in a short-term horizon (Coenen, 2009). Earnings management makes use of accrual accounting. However, the main issue regarding this is that it becomes very difficult to differentiate between regular accrual accounting and earnings management (Larcker, & Tayan, 2011, p. Now since management has discretion in earnings management, it can lead to fraudulent activities like wrong representation of data in the financial statements.Accounting standard boards have been striving hard to combat earning management practices followed by the companies. The accounting standards are revised often to help fill its loopholes. More and more regulatory measures are taken to keep a track on how the financial information is reported by the firms. These measures taken are proving quite effective in preventing current creative accounting practices, but the question is whether it will be able to stop these malpractices completely or not. It is indeed very difficult to put an end to earning management practices in future. Earnings Management: The Continuum from Legitimacy to Fraud.
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