Earnings Management Abuse

In reading Arthur Levitt’s 1998 speech to the NYU Center for Law and Business, all members of Team C were in general agreement and felt there was almost too much truth to what was being said. Given this speech was delivered in 1998, long before the Enron and WorldCom scandals were discovered, Mr. Levitt was predicting these occurrences would begin to appear due to the pressures of meeting Wall Street and investors expectations.
Mr. Levitt’s theme of earnings management being a “game among market participants” states there is an increasing number of creative accounting irregularities that will eventually hurt individual investors as well as the entire economic market structure. Levitt highlights five of the most common accounting gimmicks being used, including but not limited to “Big Bath” restructuring charges. The speech unfortunately turned out to be a gloomy prediction that we all hoped would not come true under any circumstances, but unfortunately the corporate...