Earnings management occurs when companies artificially inflate (or
deflate) their revenues, profits, or earnings per share (EPS) figures. Gaa
and Dunmore point out that earnings may be managed in many ways,
but they all boil down to two basic possibilities. One is to alter the
numbers in the financial records by using discretionary accruals and
other adjustments, and the other is to create or structure actual
transactions to alter the reported numbers. There are also two
motivations for altering financial reports through disclosure decisions.
Another perspective on earnings management is to divide the
techniques into two categories, operating earnings management and
accounting management. Operating earnings management involves
altering operating decisions to affect cash flows and net income for a
period, such as easing credit terms to increase sales. Accounting
earnings management uses flexibility in accounting standards to alter
earnings numbers. I feel that operating earnings management betters
describes this case because Trump overvalued his property in the
financial statements he gave to his financial institutions.
Letitia James accused Trump of routinely lying about the value of his
properties to secure hundreds of millions in bank loans and tax breaks.
James wants a judge to order $250 million in penalties and to bar the
Trump family from selling, buying, collecting rent, or borrowing money
in New York. Trump's objectively false 2015 claim that his Trump Tower
triplex on Manhattan's Fifth Avenue spanned 33,000 square feet. It was
11,000 square feet, a huge exaggeration. The former president has
allegedly been overvaluing the place on the financial statements he
gives to his financial institutions. Trump as part of an alleged scheme to
induce banks to lend money to the Trump Organization on more
favorable terms than would otherwise have been available to the
company. To satisfy continuing loan covenants, to induce insurers to
provide insurance coverage for higher limits and at lower premiums, and
to gain tax benefits. Records show Trump acquired a 6,096-square-foot
triplex apartment occupying a section of floors 66 through 68, around
the time Trump Tower opened in 1983. A decade later, he expanded his
penthouse, merging parts of two neighboring apartments into his home,
according to the filings. The result is 10,996 square feet of prime
Manhattan real estate, much smaller than Trump claims to own. No
records from the city indicate that he has added or shed square footage
in the years since.
Chase Peterson – Whithorn (September 21, 2022) How Forbes
Exposed Trump's Lies About the Size Of His Penthouse Retrieved from
https://www.forbes.com/sites/chasewithorn/2022/09/21/how-
forbes-exposed-trumps-lies-about-the-size-of-his-
penthouse/?sh=13da47af58ec
"Donald Trump will fight hard against Letitia James' lawsuit. Ex-AG
insiders say these are his top 5 defenses." The Business Insider,
September 24, 2022, p. NA. Gale General OneFile,
link.gale.com/apps/doc/A719403005/ITOF?u=nhc_main&sid=ebsco&
xid=626d3635. Accessed October 12, 2022.
Mintz, S., & Morris, R. (2020). Ethical obligations and decision making in
accounting (5th ed.). New York, NY: McGraw-Hill.
