1、 中文 3482 字 THE PROFIT AND ITS MANIPULATION Masca Ema Universitatea “Petru Maior”, Tg. Mures, bld. 1 Decembrie 1918, nr. 13/10, 0265266237, E-mail: masca_ In the light of recent corporate scandals, accounting today as an objective way of presenting economic reality is suffering from a real crisis of
2、confidence. Central to the Anglo-Saxon system of corporate governance, it has been pushed into the public spotlight, where its impartiality and objectivity is being questioned. Keywords: profit, manipulation, management The Positive Accounting Theory and profit manipulation Even though most of the s
3、candals have taken place in the United States, the crisis of confidence has had an impact far beyond U.S. borders, as the Anglo-Saxon system of governance is spreading throughout continental Europe and particularly in France. In order to contain the crisis, the United States and France are committed
4、 to institutional and legal reform. Moreover, those identified as having perpetrated such manipulation, essentially auditors and financial directors, have been legally sanctioned. We should nonetheless question whether these legal and legislative measures will be sufficient to restore long-term conf
5、idence in the system. Bernard Collase is asking himself if shouldnt the social dimension of the issue be taken into account? Isnt it necessary first to understand the reasons behind profit manipulation and how it functions before changing legislation? Tenants of Positive Accounting Theory have repre
6、sented the mainstream of accounting research since the early 80s. They see profit manipulation, which they euphemistically call “earnings management”, from an exclusively economic standpoint. How and why do management controllers take part in profit manipulation? That shareholder pressure leads mana
7、gement controllers to manipulate their firms profits. Going beyond individual responsibility, the organization imposed on a company by its shareholders with the aim of respecting criteria of Anglo-Saxon corporate governance is itself the cause of accounting manipulation at all levels. First, we will
8、 define the notion of “earnings management”, present a range of practices, and assess the role of management controllers in this phenomenon. We will observe that management controllers implement different methods for manipulating profit. Skill in profit manipulation enables management controllers to
9、 gain legitimacy in the eyes of managers working in a cultural context that is traditionally difficult for them. They soon become indispensable strategic allies playing the role of arbiter between the markets short-sightedness and the imperatives of operational management. Schipper proposes a repres
10、entative academic definition of profit manipulation that she refers to as “earnings management”, similarly to the vast majority of literature on this subject. She defines profit manipulation as: “a purposeful intervention in the external financial reporting process, with the intent of obtaining some
11、 private gain”. Healy and Walhen identify two main incentives for profit manipulation: contracts written in terms of accounting numbers； and capital market expectations and valuation. The first perspective is supported by the tenants of Positive Accounting Theory. They suggest that contracts between
12、 the firm and its stakeholders create incentives for earnings management. Precisely, they propose three hypotheses: the bonus plan hypothesis (directors who benefit from bonuses tied to profits are more prone to using accounting techniques that transfer future profits into the present)； the debt/equ
13、ity hypothesis (the more a company is in debt, the more it is in its interest to focus on present earnings because debt covenants, common in the United States, require certain levels of profitability)； and the political cost hypothesis (the larger a company, the more it is in its interest to postpon
14、e its profits until a future accounting period to face any risk of burdensome legislation being implemented). The second perspective suggests that the goal of earnings manipulation is to be in line with the expectations of the financial markets. Dechow and Skinner underline that academics have mainl
15、y focused on contractual incentives, much more than on the influence of capital markets on earnings management and that “this focus has been sustained by the assumption that markets are efficient”. Profit manipulation can take two forms: earnings management and falsification. Earnings management inv
16、olves postponing the period affected by an operation by changing the measurement methods, speeding up a sale or delaying a purchase. Here, we can make out in the background earnings management as limited to manipulating accounting figures,rather than to profit manipulation that involves acting on re
17、al business situations. Falsification involves disclosing wrongful data. In this case, such actions may be considered criminal. However, the fine line between these two types of manipulation remains blurred. Several profit manipulation strategies can be applied: smoothing reduces the variance of ear
18、nings and therefore to reduce perceived risk； big bath accounting wipes the slate clean for a new appointed director； or quite simply opportunistic management, the phenomenon supported by tenants of Positive Accounting Theory. Some of these techniques are the privilege of “headquarters” level, i.e.
19、boardrooms deciding to manipulate corporate results so that consolidated accounts provide the “expected” figures. Other practices presented beloware also used at other levels in the organizations. Positive Accounting Theory researchers almost exclusively focus on top-management level profit manipula
20、tion. We deny the hypothesis according to which the director is alone in making accounting decisions. Internal contracting, most often covered in Positive Accounting Theory, deals with the compensation hypothesis. In this area, results from different studies are contradictory. Few studies in the con
21、text of Positive Accounting Theory look at internal earnings management. Smoothing could be destined to (1) external users of financial statements, such as investors and creditors, and (2) management itself. More specifically, as far as management is concerned, it should be noted that the motivation
22、 to smooth income is not confined to top management. Lower management may attempt to smooth to look good to the top management. They may try to meet predetermined budgets, which in addition to serving as forecasts, also act as performance yardsticks. That most business unit managers manipulate the p
23、erformance of their units. There are few empirical studies on internal profit manipulation. Pressure to reach net earnings or budgeted expenses encourages managers to move earnings from year to year by manipulating the accounts. That profit manipulation depends in large part on the forecasting proce
24、ss. In fact, at each level in the organization expectations may be established in one of three ways. Firstly, an independent estimate can be reached independently from any other in the organization. Secondly, an estimate can be reached by aggregating estimates made by lower levels in the organizatio
25、n. Thirdly, an estimate can be reached by disaggregating a higher level estimate. That one response to failure in reaching forecasts is creative book-keeping - there was evidence of a cross allocation of costs in order to protect units from external criticism and to protect reputation. The organizat
26、ion of such protection was an imaginative task for the accounting staff. Lastly, another factor which explains profit manipulation: the result of these case studies indicates that the interdependence of forecasts at different levels when forecasts have been made by disaggregating may encourage manag
27、ers to take a series of defensive positions and make the information and reporting systems opaque. How much profit manipulation takes place does not only depend on how accounting is used to evaluate the performance of managers and their pay but also how forecasts are made that will be used as a base
28、line for such performance appraisal. Thus, the remuneration hypothesis put forward in the Positive Accounting Theory does not suffice to explain internal profit manipulation. The agency model in a French context Profit manipulation performed by management controllers must be put in perspective. The
29、Anglo-Saxon model of corporate governance is consistent with a specific cultural context, and lends factual data, and therefore accounts, a special status. Indeed, the American approach to collecting and handling factual data is intimately tied to the American way of life. Judicial or quasi-judicial
30、 procedures, which are held in high esteem, give fundamental value to material proof. The way data is collected and used reflects the American preference for accounts that everyone should render public. Accounting statements correspond perfectly to this way of thinking. The French distinguish two ro
31、les factual data is likely to play: enabling us to understand better how things work； and providing a means of assessing people. In the French system, confusing these two roles (which is perfectly legitimate in the United States) generates resistance. The controllers sense of responsibility alone (m
32、eaning what he feels responsible for, and not what he needs to account for) makes him pay attention to information he receives. The French model hardly encourages us to judge each person on the basis of such data and is opposed to superiors demanding accounts that are too stringent. That subordinate
33、s may protect themselves from all hierarchical “interference” by surrounding their activity in a shroud of opacity is not considered an illegitimate act. As a consequence, it is the legitimacy of accounts that lies at the heart of the debate in a French context. In general, accounts can be seen as perfectly legitimate by an individual, when they are only seen as signals enabling him to see clearly the direct and indirect consequences of his actions, leaving him room to draw his own conclusions. Such an approach seems well adapted to
