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The report entitled “Agressive Earnings Management” refers to using accounting policies and stretching judgements of what is acceptable to present corporate performance in a more favourable light than the underlying reality. Interviewed audit partners, finance directors, audit committee chairmen, investment analysts and senior financial feared that the threat would increase if the economic climate moved towards recession or if the current post-Enron vigilance falters. Almost all believe there are two key motivating factors giving rise to the threat of manipulation of figures – the need to meet or exceed market expectations and the gearing of director and management income to results.
Suggestions stated in the survey include:
The institute has repeatedly urged its members to step up preparation for the new accounting standards after evidence that many companies were struggling.