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

Exercise 1

In Arthur Levitt's speech, referred to in the opening quote, he also said, "I fear that we are witnessing an erosion in the quality of earnings, and therefore, the quality of financial reporting. Managing may be giving way to manipulation; integrity may be losing out to illusion." Explain what you think Levitt meant by this statement. What role do financial analysts' earnings expectations play in the quality of earnings?