Firms may meet earnings benchmarks via operational excellence or by taking real actions to maintain accounting appearances. Explain why the latter approach may be detrimental to a firm's stockholders.
What will be an ideal response?
Many of the actions management can take to maintain accounting appearances result in a sacrifice of long-term firm value. For example, management may choose to decrease discretionary spending (e.g. R&D, advertising, or maintenance) to lower expenses in the current period. However, these decreases probably have long-term adverse effects. Lowered levels of R&D may result in fewer new products coming to market in future years. Reduced advertising erodes brand awareness and future sales. Deferred maintenance expenditures can lead to premature, and costly, equipment failures. Or take the case where management engages in channel stuffing. Sales that might normally occur in the future are shifted into the present, but at the cost of whatever incentives management provided to get the customers' orders sooner rather than later.
You might also like to view...
When defining the problems you need to address in an analytical report, ask yourself:
A) How long should this report be? B) Why is this issue important? C) What is my purpose is writing this? D) Who will read the report? E) How can I use this report to gain credibility?
An adjusted trial balance must be prepared before the adjusting entries can be recorded
Indicate whether the statement is true or false
Which of the following involves the use of a secondary source?
A) Talking to the entry-level employees about why the duties are not being properly executed B) Surveying other companies who outsource the kinds of duties you are looking to outsource C) Reading a journal article about the perceived versus actual cost effectiveness of outsourcing D) Discussing the situation with your boss E) Speaking to outsourcing service providers about some options
Which computer-based site-selection model generally includes the largest number of variables?
a. analog b. gravity c. regression d. interactive