TLV plc. is a publicly listed company with a 31 December year end.
Employee compensation at TLV plc. is share-based according to the following contract terms:

•  Employees receive share appreciation rights (SARS) that qualify as cash-settled share-based payments.
•  The grant date of the instruments is 1 January.
•  Vesting is conditional on:
o  Working for TLV plc. for three years following the grant date of the instruments.
o  Earnings per Share (EPS) increasing by an average of 10% each year over the three-year vesting period.
•  SARS are settled by cash payments of any positive difference between the vesting date share price and a predetermined value.
On 1 January 2017, TLV plc. granted 100 SARS to each of 50 employees. On 31 December 2017, two employees had left the company. At this point in time, TLV plc. expected five employees in total to leave the company until the end of the vesting period. On the same date, the fair value of one share appreciation right was £30 and EPS increase for fiscal year 2017 was 11%. TLV plc. expected EPS to increase at the same annual rate until the end of the vesting period.

On 31 December 2018, five further employees had left the company. TLV revised its estimate of the number of employees leaving the firm until the end of the vesting period from five to ten. On 31 December 2018, the fair value of one share appreciation right was£20 and EPS increase for fiscal year 2018 was 5%. Despite the low increase in EPS, TLV plc. maintained its expectation that EPS would increase by an average of 10% each year of the vesting period.
On 31 December 2019, one further employee had left the company, the fair value of one share appreciation right was £23 and EPS increase for fiscal year was 9%.

REQUIRED:
a). Define and explain the term 'earnings management.'
b). Evaluate how the contract terms for the share-based payment (SARS) granted by TLV plc. set incentives for earnings management.
c). Assume that the contract terms for the share-based payment (SARS) granted by TLV plc. set incentives for earnings management. Further assume that all of the employees receiving SARS are involved in decisions about accounting treatments. Which specific accounting treatments could the employees use to manage earnings? Provide at least three examples. Explain each of your examples.
d). Set out and explain the correct accounting treatment to recognize the SARS granted on 1 January 2017 in the financial statements of TLV plc. for the years ended 31 December 2017, 2018 and 2019. Use journals and explain each step.
e). TLV plc. recognizes different amounts as compensation expense at the end of fiscal year 2017 and 2018. Specify the sources of this difference.
f).  The recognition of expenses for share-based payments is a controversial topic. Evaluate the arguments for and against the recognition of compensation expense in the financial statements.