Earnings management- A result of conflicts between accounting principles and tax laws

Earnings Management is one of the most important ethical issues today faced by the accountants and financial professionals around the world. All the users of accounting information depend on accountants and auditors to provide accurate, fair and reliable financial information because, their decisions are purely based on these information. The outcome and direction is based on the direction of such information. Earnings Management usually involves the artificial increase or decrease of revenues, profits or earnings per share through aggressive accounting tactics. The accountants by exercising their subjective choice are able to manage the result of the Income Statement, so as to suit to their requirements which are otherwise called manipulation. Earnings can be manipulated either by ‘Accounting Manipulation’ or by ‘Operating Manipulation'. Both practices are wrong but Accounting Manipulations are judged to be more serious ethical violation than Operating Manipulations. Earnings Management is strongly backed by human psychology. The very common human psychology is that, not interested to pay for a very noble cause or payment of tax on the earnings. Earnings Management tries to minimize the gap between accounting profit and Taxable profit. Earnings Management is a twin edge weapon. The fault/benefit whenever/wherever it emerges lies with the user.