In many companies, the top management receives bonuses based upon the profits measured by the accounting system. Also, many companies believe that the stock market reacts strongly to reported profits.

For accounting purposes, at the time the money is spent, expenditures on training employees, advertising products, and doing research on new products are all expenses that reduce reported profits. However, training, advertising, and research are all likely to be vital for the long-term success of companies.

A. Explain how the way training, research, and advertising are measured could cause managers to behave in ways that hurt the company.

B. Can you suggest any ways in which a company could avoid these problems?