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Is Managing Earnings Ethically Acceptable? Surveys Show Age and Seniority Affect Attitudes on Earnings Management
Management Accounting
  • Kenneth Yale Rosenzweig, University of Dayton
  • Marilyn Fischer, University of Dayton
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Is managing earnings through accounting methods ethically acceptable? That's the question we recently asked a sample group of management accountants. The response to the survey was enlightening. Our survey was designed as a follow-up and extension of the research done by Bruns and Merchant and published in Management Accounting in August 1990. They found that managers disagreed considerably on whether earnings management is ethically acceptable. They also found that in general the respondents thought manipulating earnings via operating decisions was more ethically acceptable than manipulation by accounting methods. Bruns and Merchant were disturbed by these findings. They were concerned that these practices could be misleading to users of the information and, over time, reduce the credibility of accounting numbers and thereby damage the reputation of the accounting profession.

Bruns and Merchant surveyed managers, but accountants as well can influence the level of reported earnings either directly by means of their impact on the choice of accounting methods or indirectly by monitoring the actions of managers who influence reported earnings. To learn more about accountants' attitudes toward earnings management, we surveyed 265 members of a regional organization of accountants (approximately 38% of the total membership). Our questionnaire was adapted from the one used by Bruns and Merchant and included 13 descriptions of managerial actions. The accountants were asked to rate these actions on a 5-point scale from “ethical” to “totally unethical.” (See “Earnings Management Questions.”)

For the purpose of this study, we define earnings management in terms of the actions of a manager that are intended to increase (decrease) current reported earnings of the unit for which the manager is responsible without generating a corresponding increase (decrease) in the long-term economic profitability of the unit. Our definition is consistent with the way Bruns and Merchant used the term, although there is no standard, widely accepted definition of earnings management.

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The journal Management Accounting was renamed Strategic Finance in March 1999. The National Association of Accountants was renamed the Institute of Management Accountants in the 1990s. This article was made available for download with the permission of the Institute of Management Accountants; any content from the article must be attributed properly.

Permission documentation is on file.

The study received extensive coverage in multiple media nationally and internationally, including a mention in the Wall Street Journal's “Labor Letter: A Special News Report on People and Their Jobs in Offices, Fields and Factories.” Wall Street Journal 75(96), March 1, 1994.

National Association of Accountants, now known as the Institute of Management Accountants
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Citation Information
Kenneth Yale Rosenzweig and Marilyn Fischer. "Is Managing Earnings Ethically Acceptable? Surveys Show Age and Seniority Affect Attitudes on Earnings Management" Management Accounting Vol. 75 Iss. 9 (1994)
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