Question Four: (10 marks)

The beginning of the twenty-first century saw a series of accounting scandals worldwide. Central to all these failures was aggressive earnings management, in which entities misstated earnings or presented misleading accounting information.

1. Describe the importance of earnings in assessing the success of an organization. (2 marks)

2. Assess the role corporate governance plays in controlling earnings management. (3 marks)

3. There are a range of techniques that commonly fall within category of earnings management one of them is accrual accounting policy. What is accrual accounting policy and how is it commonly used to manage earnings? (5 marks)