Page 35 - CFA Lecture Day 10 Slides

Session Unit 9:
32. Financial Reporting Quality, p.305

LOS 32.d: Describe motivations that might cause management to issue financial reports that are not
high quality., p.309

To meet or exceed a benchmark number for earnings per share; benchmarks
could be:
• Earnings guidance offered earlier by management.

• Consensus analyst expectations.
• Those of the same period in the prior year.
tanties

By Why? Aggressive Accounting:
• Career-orientation -seeking to enhance reputation and promotion

prospects;
• Compensation –linked to share price.
• Gain credibility with equity market investors or

• Improve the way the company is viewed by its customers and suppliers.
• Desire to avoid violating debt covenants.

Conservative Accounting:
• When earnings exceed benchmark levels, managers worry they may not be

able to sustain; so may wish, for instance, delay recognition of revenue!