Chapter 3
To Manage or Not to Manage Earnings?
Why You Shouldn’t Even Think of Manipulating Financial Information
In This Chapter
- Surprise, there is no “truth” in accounting information.
- GAAP to the rescue of truth, sort of.
- Why do managers manipulate financial information and how do they do it?
- The harsh consequences of manipulation for investors and managers.
- Just don’t manipulate; there are better alternatives.
On September 12, 2007, the SEC charged former top executives of Nortel Networks, a Canadian telecommunications equipment maker, with accounting and reporting fraud aimed at beautifying reported earnings.1 Specifically, the SEC alleged that in 2002 Nortel executives created accounting reserves, in violation of GAAP, by artificially ...
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