Explain Why a Company's Reported Earnings May Not Necessarily Be

Explain why a company's reported earnings may not necessarily be an objective measure of economic reality.Give examples of when this might occur.
For one thing,"generally accepted accounting principles" (GAAP) allow an accountant to select from various methods when computing earnings and other financial measures,which could lead to lower quality financial information depending on the accounting methods used.The "quality" of financial information is measured by how well the numbers reflect economic reality.Furthermore,company managers can "manage earnings" subjectively by timing business activities or the reporting of those activities.

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Earnings management becomes fraud when c...

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