Ethical Obligations and Decision-Making in Accounting: Text and Cases 4th Edition by Steven Mintz,Roselyn Morris

Exercise 10

Maines and Wahlen 94 state in their research paper on the reliability of accounting information:" Accrual estimates require judgment and discretion, which some firms under certain incentive conditions will exploit to report non-neutral accruals estimates within GAAP. Accounting standard scan enhance the information in accrual estimates by linking them to the underlying economic constructs they portray." Explain what the authors meant by this statement with respect to the possible existence of earnings management.