Paper P7: Massaging the figures
Earnings management occurs when companies deliberately manipulate their revenues and/or expenses in order to inflate or deflate figures relating to profits and earnings per share. There is an increased risk of earnings management or even fraudulent financial reporting in companies affected by the global economic downturn. Auditors therefore need to conduct risk assessment and audit procedures carefully and may need to approach all companies’ financial statements with an increased degree of scepticism.
