CASE STUDY 9.1
THE ETHICS OF EARNINGS MANAGEMENT
of almost any organisation, whether business, government, or non-profit, must
manage the organisation's external disclosures
disclosures is to manage earnings.
the same accounting standards to public and private organisations,
sector bodies can manage earnings in much the same way as businesses do
ethical status of earnings management is controversial
. Whether acts of earnings
management are ethically justifiable
on management's intention either to
be truthful or to mislead
readers of the statements. This article looks at the ethics of
, which is one form of earnings management.
The financial reports of the New Zealand Symphony Orchestra Ltd (NZSO) during the
provide a useful example of income smoothing. Based on the publicly available information
contained in its financial statements, we can conclude that the income smoothing conducted by the
NZSO in the late 1990s is
, and therefore is
we can see that income smoothing, which is a specific type of earnings
management, is at least sometimes ethically justifiable.