Question
Why is there an incentive for a manager to inappropriately reduce reported profit when it appears that profits are likely to be above the upper
Why is there an incentive for a manager to inappropriately reduce reported profit when it appears that profits are likely to be above the upper limit of a manager's bonus range?
A.
By moving this year's sales into next year or moving next year's expenses into this year, the manager ensures a higher level of reported profit (and probably a higher bonus) next year.
B.
By decreasing this year's income, the manager avoids ratcheting up of performance expectations in setting the bonus target for the next year.
C.
None of the above are correct.
D.
Both a and b are correct.
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