Internal Earnings Targets Represent an Important Tool in Motivating Managers

Essay

Internal earnings targets represent an important tool in motivating managers to increase sales efforts,control costs,and use resources more efficiently.Such internal targets also can cause managers to resort to extreme measures in order to meet goals established by upper management.Earnings management often appears in a variety of forms as a means of reaching these internal goals.
Earnings management also is associated with earnings-based internal bonus plans which are also a form of internal target.
Explain how earnings management is related to earnings-based internal bonus plans and how managers behave in response to such plans.