Accounting Assignment: Managing Earnings Forecasts, Incentives, And Risk-Taking
Question
Task: Students need to choose 1 topic from Topics 1 – 4 AND choose 1 topic from Topics 5 – 7:
Topics 1 – 4: any time until noon Monday 13 August (Week 7)
Topics 5 – 7: any time until noon Monday 10 September (Week 11)
You are required to do two (2) things as an individual student for this Assignment:
- Choose & identify a relevant article for EACH of your two chosen Topics;
- Contribute a 500-word post to a Discussion Forum (DF) explaining the relevance of the article.
Make sure you PAY ATTENTION to the details below about each of these two things!
NOTE: there will also be a short recording made available in week 5 explaining this in the Assessment Details section and some good and poor examples are provided in the Assessment Details section.
- Topic 1 Theories of accounting
- Topic 2 Measurement in accounting
- Topic 3 Accounting policy choice
- Topic 4 Regulation of accounting
- Topic 5 Corporate governance
- Topic 6 CSR
- Topic 7 Critical Accounting theory
Answer
Management earnings forecasts, managerial incentives, and risk-taking
This Accounting Assignment investigates the vital concept of financial reporting because the entire disclosure rests upon this concept. With the due passage of time, there has been the great development in the measurement in accounting. For example, the introduction of Sarbanes-Oxley Act 2002 stressed greater disclosure and helped the disclosures to get more meaningful information. When the disclosure policy is effective, it lessens the information disadvantage of investors who are not informed (Susan & Xiaolu, 2018). This happens by dint of reduction of the information asymmetry between the investors who are informed and who are uninformed. Hence, measurement in accounting has enhanced over a period of time so that evaluation is better and automatically helps the investors of the firms at large. The major initiative of measurement in accounting lies in the fact that the management needs to be consistent with the earnings prediction, managerial incentives, and risk-taking (Laux, 2014). It is imperative that the process can lead to a better cash flow. Further, it is a common parlance that the disclosure leads to a reduction of managerial actions that are opposite to the interest of the shareholder. The firm’s environment is vastly enhanced owing to the accounting measurement. The Accounting Assignment explores challenges in regard to this concept and it is emphasized that the disclosures are costly to the shareholders. While discussing the concept of measurement in accounting it is clear that management earnings forecasts, incentives, and risk-taking forms a vital part. The article stresses the fact that disclosures are the primary need of the stakeholders and the measurements in accounting emphasize this fact (Susan & Xiaolu, 2018). The article highlights the fact that disclosures lead to the major attraction of the stakeholders. Disclosure and risk-taking have been clearly projected in the article. Disclosure tends to be costly in nature but leads to minimal risk-taking (Carmichael & Graham, 2012). Hence, when accounting conventions and measurement of accounting are used it is directed towards a higher level of disclosure and ultimately leads to a lower level of risk-taking.
It needs to be noted that the managers are more directed towards the goals of the organization and stresses upon the short-term earnings at the expense of the investments that are foregoing. This enhances the long-term value of the firm. Moreover, the negative link between the voluntary disclosure and risk-taking is lessened due to the managerial activities (Susan & Xiaolu, 2018). It is important to note that the policy of disclosures is associated with higher costs. However, earnings management is one of the important discussions in the article that has been dealt with by the author. Long-term firm value can be enhanced with the aid of measurement in accounting (Brigham & Daves, 2012). Overall, the updates and the amendments that happen in the accounting conventions are directed towards bringing a sense of clarity and smooth work. The Accounting Assignment coins the fact that risk-taking can be lessened when the managers are in tune with the activities of the company. A price based managerial incentive measure is important and the same has been discussed in the journal. In totality, the disclosure is important that will help the firm to flourish but requires higher costs. Therefore, measurement in accounting tends to be updated with the due passage of time.
References
Brigham, E. & Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.
Brigham, E. & Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting. Accounting and Business Research. [online]. 44(4), 380-382. Available from: http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/4235/3672 [Accessed 9 August 2018]
Susan M.A., & Xiaolu, Xu. (2018) Management earnings forecasts, managerial incentives, and risk-taking. Advances in accounting. [online]. Doi: https://doi.org/10.1016/j.adiac.2018.07.006
