Asked by: Delilah Totolos
Asked in category: business and finance, sales
Last Updated: 7th Feb 2023

What is real earning management?

Real earnings management (REM), is defined as the management of operational activities that alter reported earnings in a specific direction. This is accomplished by overproducing inventory to reduce the cost per unit (COGS), or cutting discretionary costs (i.e. advertising expenses, research and development).

What is accrual earnings management?

Accrual-based earnings Management aims to hide true economic performance by changing accounting methodologies or estimates within generally accepted accounting principles. Real earnings management affects the execution and completion of actual business transactions.

Is earning management also legal? It is also possible to ask the question, "Is earning management legal?"

Also, asked: What is the difference between accrual and real earnings management?

Accrual-based earnings Management (AEM), is analyzed by assessing performance-adjusted discretory accruals. Real earnings Management (REM) is defined as abnormal levels of production costs, discretionary expense, and cash flows out of operations for a period of three years before and after the adoption.

What types of earnings management are there?

Two types of earnings management can be used: efficient earnings management (which aims to increase earnings information in communicating private data) and opportunistic earning management (which reports earnings opportunistically to maximize one's utility) (Scott 2000).