How To Write The Ethics Of Earnings Management Case Study (Rankin 9.1)

Short answer: To write the ethics of earnings management case study well, define earnings management precisely, separate accrual choices from real actions, explain managers’ incentives with positive accounting and agency theory, then judge the behaviour through at least two ethical lenses and take a clear position. Tie every point to a fact from the case, not to general opinion.

The original assessment brief is available on our question page: BUS 304 Assignment: Strategic Analysis of Accounting Standards & Corporate Ethics.

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What the case study really asks

Many accounting theory courses allocate each group a case from Rankin, Ferlauto, McGowan and Stanton’s Contemporary Issues in Accounting (3rd edition, Wiley). Case Study 9.1 addresses the ethics of earnings management. A typical BUS304 group report has an introduction, answers to the case questions, concluding remarks and a reference list, within a word limit of about 2,500 words, with contemporary academic literature and Harvard referencing.

Individual members often take a part each, for example an introduction, a synopsis and one question. That makes consistency important. The brief rewards a shared argument, not four separate essays. You can see how an extract might be laid out in our worked sample, for reference only. The original question is not yet on our solved questions hub.

Step-by-step approach

1. Read the case twice. On the first pass note facts only. On the second, mark where managers had a choice and who relied on the numbers.
2. Agree the group argument. Write one sentence that every section will support, such as “earnings management is unethical when intent and effect mislead users”.
3. Define terms from a reliable source. Use a review article, not a website, for the definition of earnings management (Healy and Wahlen, 1999).
4. Explain the incentives. Apply positive accounting theory (bonus, debt covenant, political cost) and agency theory to the facts (Watts and Zimmerman, 1990).
5. Classify the method. Decide if the case shows accrual choices, real activities choices, or both (Roychowdhury, 2006).
6. Apply ethical theories. Use two or three lenses and say which one your group finds most persuasive.
7. Check the standards. Link to neutrality and faithful representation in the IASB Conceptual Framework (IASB, 2018).
8. Conclude with safeguards. Offer practical controls, such as audit committee review and balanced pay design.

If you want a marker’s-eye review of your draft, accounting assignment help from our experts covers structure, theory and referencing.

Planning table: theory to case evidence

Using the research without over-claiming

Markers look for accurate use of literature. Graham, Harvey and Rajgopal (2005) surveyed 401 financial executives and report that 78 per cent would give up economic value to smooth earnings. That is a survey of US executives, so describe it as evidence of attitudes, not proof about the firm in your case.

Recent reviews such as Bansal (2024) give you a contemporary source for the state of the field, and they also help you avoid claiming misconduct without evidence, because they show how hard it is to separate opportunistic from informative discretion. Check that each citation supports the sentence it sits beside, and use only sources you have opened.

How to structure the individual parts

The introduction is short, so every sentence has to work. Open with the issue in one line, state your group’s position in the next, and close with a roadmap. Avoid long background about the company or the standards. About 100 words is enough.

The synopsis is a faithful summary, not an argument. Cover who made the reporting decision, what the decision was, who relied on the numbers and what ethical tension the case sets up. Around 200 words works well, and every detail should be traceable to the case text. Save the analysis for the question sections.

The question answer is where marks are won. A reliable paragraph pattern is point, theory, case evidence, judgement. For example, state that an incentive existed, name the theory that predicts it, cite the case fact that shows it, then say what that means for the ethics. Repeat this pattern for each lens and finish with a short paragraph weighing the competing views.

Handling the textbook question wording

Different cohorts may meet slightly different wording for the same case question. Copy the exact question from your own textbook into your planning notes, underline the command verb, and check that each paragraph answers it. If the question asks you to evaluate, a description of theories alone will not be enough. If it asks you to justify, your position has to be clear and supported.

Coordinating the group

Share a single glossary document before anyone drafts. List the key terms (earnings management, accrual, real activities, faithful representation) with the source and definition your group will use. Agree one referencing template and one tense. Then swap sections for a read-through, and ask each reader to note any claim without a case fact or citation behind it. This small step often catches the contradictions that cost groups marks for coherence.

Finally, keep a version log. When several people edit the same file, the introduction and conclusion tend to drift apart, so check them against each other on the last day.

Mark-maximising checklist

• The introduction states the issue, the group argument and the section order.
• The synopsis uses only facts that appear in the case.
• Earnings management is defined once and used consistently.
• At least two ethical lenses are applied to named case facts.
• Accrual and real methods are distinguished.
• Counter-arguments are acknowledged before the conclusion.
• Citations are recent where possible and listed in Harvard style.
• The group’s sections use the same terms and do not repeat each other.
• The word count is within the limit stated in your unit outline.

Common mistakes

• Treating all earnings management as fraud. Much of it sits inside the standards, which is why the ethics is hard.
• Describing theories in general terms without applying them to the case.
• Relying on blogs or lecture slides for definitions.
• Writing a long synopsis that uses up the word count for the analysis.
• Skipping the conclusion’s recommendations.

What students worry about

Group members often ask how to split the work fairly, how to avoid overlap, and what to do when the textbook question wording is different from what they expected. Others worry that they will be accused of opinion. The solution is to separate description from judgement: say what happened, then say which framework you apply and why. Hold a short group meeting to align terms before drafting. See how other students rate expert feedback on our reviews page.

Looking for structure and analysis support on a group case? Our case study assignment help page explains how we support recommendations and frameworks.

FAQs

What is earnings management in simple terms?

It is the use of judgement in reporting, or in structuring transactions, to change reported earnings, either to mislead users or to affect outcomes tied to reported numbers.

Is earnings management always illegal?

No. Accrual choices within the standards can be legal yet still raise ethical questions about intent and effect on users.

What is the difference between accrual and real earnings management?

Accrual management changes accounting treatments or estimates. Real management changes actual business decisions, such as spending or production, to affect the reported figure.

Which theories should I use?

Positive accounting theory and agency theory explain motives. Utilitarian, duty-based and stakeholder views help you judge the behaviour.

How many sources do I need?

Follow your unit outline. Use contemporary peer-reviewed sources plus the textbook, and make sure each one is actually used in the argument.

Can I write my part before the group agrees the argument?

It is risky. Agree one shared thesis first, or sections may contradict each other and lose marks for coherence.

About the expert

Bryan Chen is listed with a Ph.D. in Accounting from the SMU School of Accountancy. His profile shows 1,425+ completed orders and experience as an accounting researcher.

References

• Bansal, M. (2024) ‘Earnings management: a three-decade analysis and future prospects’, Journal of Accounting Literature, 46(4), pp. 630-670. doi:10.1108/JAL-10-2022-0107.
• Graham, J.R., Harvey, C.R. and Rajgopal, S. (2005) ‘The economic implications of corporate financial reporting’, Journal of Accounting and Economics, 40(1-3), pp. 3-73.
• Healy, P.M. and Wahlen, J.M. (1999) ‘A review of the earnings management literature and its implications for standard setting’, Accounting Horizons, 13(4), pp. 365-383. doi:10.2308/acch.1999.13.4.365.
• International Accounting Standards Board (2018) Conceptual Framework for Financial Reporting. London: IFRS Foundation.
• Roychowdhury, S. (2006) ‘Earnings management through real activities manipulation’, Journal of Accounting and Economics, 42(3), pp. 335-370.
• Watts, R.L. and Zimmerman, J.L. (1990) ‘Positive accounting theory: a ten year perspective’, The Accounting Review, 65(1), pp. 131-156.