Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 4 - Income Statement and Related Information - Review and Practice - Questions - Page 179: 7


Earning management has adverse effects on income statements in such a way that it reduces their usefulness in making future cash flow predictions.

Work Step by Step

By using biased income measurement, earning management compromises the reliability of income by lack of fair representation of some elements of income such as volatile earnings, which may be adjusted in a way where they appear to be more smooth.
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