In accounting, earnings management is intentionally influencing the
process of
financial reporting to obtain some private gain. Earning management
involves the alteration of financial reports to mislead stakeholders
about the organization’s underlying performance, or to “influence
contractual outcomes that depend on reported accounting numbers.”
b The most popular and successful techniques used to manage
earnings can be
categorized into 11 groups: cookie jar, big bath, a big bet on the
future, flushing of an
investment portfolio, throw out the problem child, change in GAAP
amortization,
depreciation and depletion, sale/leaseback, and asset exchange,
operating vs. non
operating income, early retirement of corporate debt, and stock
buybacks.
b The New York Attorney General Letitia James filed a lawsuit
against Donald
Trump, the Trump Organization, senior management, and other
involved entities for
engaging in years of financial fraud to obtain a host of economic
benefits. The claim
states that Trump falsely inflated his net worth by billions of dollars
to induce banks
to lend the Trump Organization more favorable terms that would not
otherwise
have been available to the company.
b From 2011 to 2021, Donald Trump and the Trump
Organization knowingly and
intentionally created more than 200 false and misleading valuations
of assets on his
annual statements of financial condition to defraud financial
organizations.
b The earning management technique could be associated with
real-activity
earnings management using operating decisions. This type of earning
management is
when managers make decisions that affect the real operations of the
firm. The
Trump Organization made decisions that affected the whole
company to get
economic benefits. This affected the Trump Organization because
they got benefits
that should have been designed for other organizations. These other
organizations might have needed them more than the Trump
Organization.
Wikipedia Contributors. (2018, February 17). Earnings management.
Wikipedia; Wikimedia Foundation.
https://en.wikipedia.org/wiki/Earnings_management
Earnings Management Practices and Techniques. (2020, June 11). MBA
Knowledge Base. https://www.mbaknol.com/financial-
management/earnings-management-practices-and-techniques/
Attorney General James Sues Donald Trump for Years of Financial Fraud.
(n.d.). Ag.ny.gov. Retrieved October 16, 2022, from
https://ag.ny.gov/press-release/2022/attorney-general-james-sues-
donald-trump-years-financial-fraud
