Graham Et Al
Páginas: 2 (353 palabras)
Publicado: 10 de noviembre de 2012
Please make one-page summary and discussion for your opinions after reading the article written by Graham et al.
Summary
This article is based on a survey given to 401 senior financial executivesin the United States during the fall of 2003, and detailed interviews to 22 Chief Financial Officers between 2003 and 2005. Among these respondents, they showed the preference to sacrificeshareholder value in order to meet earnings expectations, or to smooth reported earnings.
Even when previous research focused on accounting to go hand in hand with earnings management, there is new evidencethat shows that the real earnings management approach is now widely used and favored. While the accounting approach used accrual decisions, the real earnings can include the deferral of a costlyproject, or cutting on research and development expenses. This approach, real earnings, most of the time decreases value.
As the result of the interviews, it was shown that Chief Financial Officersbelieved that the key measure used by investors and other interested parties is earnings and not cash flows. They also viewed quarterly earnings, as compared to the same quarter, on the previous year andthe analyst estimate, as two important earnings standards.
Meeting the earnings standards is very important, as per the CFOs, since they say this builds confidence and credibility, whichcontributes to the increase in price of the company’s stock. This entails sacrificing of the economic value on the long term. CFOs believe that in order to achieve what the analysts’ predictions are, sometimescostly projects, even when they would benefit the company’s value in the long term, need to be delayed. On the other hand, the senior executives are hesitant to use adjustments to hit earnings, evenwhen they are in agreement with GAAP.
In summary, almost all of the Chief Financial Officers prefer to smooth earnings, while only 78% of the executives would.
I agree with the executives that...
Summary
This article is based on a survey given to 401 senior financial executivesin the United States during the fall of 2003, and detailed interviews to 22 Chief Financial Officers between 2003 and 2005. Among these respondents, they showed the preference to sacrificeshareholder value in order to meet earnings expectations, or to smooth reported earnings.
Even when previous research focused on accounting to go hand in hand with earnings management, there is new evidencethat shows that the real earnings management approach is now widely used and favored. While the accounting approach used accrual decisions, the real earnings can include the deferral of a costlyproject, or cutting on research and development expenses. This approach, real earnings, most of the time decreases value.
As the result of the interviews, it was shown that Chief Financial Officersbelieved that the key measure used by investors and other interested parties is earnings and not cash flows. They also viewed quarterly earnings, as compared to the same quarter, on the previous year andthe analyst estimate, as two important earnings standards.
Meeting the earnings standards is very important, as per the CFOs, since they say this builds confidence and credibility, whichcontributes to the increase in price of the company’s stock. This entails sacrificing of the economic value on the long term. CFOs believe that in order to achieve what the analysts’ predictions are, sometimescostly projects, even when they would benefit the company’s value in the long term, need to be delayed. On the other hand, the senior executives are hesitant to use adjustments to hit earnings, evenwhen they are in agreement with GAAP.
In summary, almost all of the Chief Financial Officers prefer to smooth earnings, while only 78% of the executives would.
I agree with the executives that...
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