On Managing Earnings Per Share

BY WILLIAM N. MCNAIRN

I found the views in “What Drives Earnings Management?” ( JofA, Oct.00, page 106) very interesting and thoughtful. The author identified many of the factors buried in GAAP that management can use to “finger paint” earnings per share.

However, when one observes the broad arena in which earnings per share are being managed with ingenuity by corporate executives, the question arises: Is it ever going to be possible to effectively limit these ploys, given the number of variables a willing management can resort to in influencing earnings per share and the degree to which the figures are blindly accepted by Wall Street as accurate measures of corporate performance?

Because of the inherent complexity of financial reporting and the many different and legitimate purposes for which financial data can be used, it would be very difficult to write standards that would adequately limit executive ingenuity in compiling the earnings per share figure for any given period. Perhaps the best that can be hoped for is to write standards that provide reasonable transparency in the report figures and to educate consumers about the numerous pitfalls that lie behind these figures and limit their accuracy.

William N. McNairn
Palos Verdes Estates, California

SPONSORED REPORT

6 key areas of change for accountants and auditors

New accounting standards on revenue recognition, leases, and credit losses present implementation challenges. This independently-written report identifies the hurdles that accounting professionals face and provides tips for overcoming the challenges.

PODCAST

How tax reform will impact individual taxpayers

Amy Wang, a CPA who is a senior technical manager for tax advocacy at the AICPA, answers to some of the most common questions on how the new tax reform law will impact individual taxpayers.