Ethical Reflection

Earnings management reduces the usefulness of reported results and has consequences for the company, top management, and the shareholders whose interests they are supposed to protect.

Audit Analytics describes the differences when financial statements are restated because of improper financial reporting by revising or reissuing the financial statements effected.

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The S E C reported a total of 484 restatements in 2019 the lowest in 19 years analyzed.

However, the percentage of revision restatements is high: 79% of the total.

Revision restatements do not appear to the public to be as severe as reissuance restatements where the public is told not to rely on the original financial statements.

Earnings management is oftentimes the motivation for fraudulent financial reporting and has implications for the internal controls.

Earnings management often leads to S E C investigations for violations of regulatory requirements.

Earnings management has implications for ethical leadership that is often missing causing gaps in corporate governance and an environment that condones, it not directs, earnings management.