AN OVERVIEW INCOME MANAGEMENT AND INCOME SMOOTHING AND ITS IMPORTANCE IN ACCOUNTING

Abstract

Accruals are categorized into two categories discretionary accruals and also nondiscretionary accruals. Discretionary accruals are accruals that management can apply control over them and they are applicable terms my management and they are recorded based on the taste and choice of management. Relative ability to reduce or increase of reported earnings by managers are introduced as manipulation of accounts. Topics such as maximizing, minimizing, or smoothly refers to who implicitly take action to manipulated of accounts. Of course manipulation of accounts be encompasses considerably broader scope. Accruals are defined as distance between operating cash flows and accounting profit. Earnings management is intentional interference in external financial reporting process with intent to obtain a benefit. Income smoothing has two forms: 1- Reduction of Earnings; It is when the expected profit will be high temporarily, 2- Incremental Earnings; It is when profits will be lower than expected profit or profits of the previous year. Fraud is any action intentional or fraudulent one or several people of managers, employees or persons illegally. The purpose some of frauds may not be falsification of financial statements. Fraud that be done involving one or more persons of managers called as managers fraud and also fraud that be done by staff called employee fraud. In this article explains to importance of accruals, earnings management, earnings management utility, income smoothing and the role that play in the accounting.