COMMENTARY on Earnings Management.

Abstract This article presents a commentary on earnings management and associated accounting practices. The commentary is intended to provide a framework for thinking about the implications of research design choices in earnings management research, to demonstrate some tradeoffs involved in making those choices, and to describe the connection between earnings management research and some other areas of accounting research. According to the author, although the variety of accrual options available under generally accepted accounting principles and the susceptibility of accruals to manipulation mean that the resulting accounting numbers could in principle be managed to the point of uninformativeness, available empirical evidence indicates that accruals do in fact have information content. The author focuses on three issues: defining the object of earnings management; exploring conditions giving rise to earnings management; and designing empirical tests of earnings management. Under an informational perspective, earnings are one of many signals which may be used to make certain decisions and judgments, such as, the decision in the valuation of securities. The informational perspective on earnings management assumes that managers have private information which they can use in making accounting decisions.