Paper Title
EARNINGS MANAGEMENT PROBLEM IN COMPANIES

Abstract
Abstract - The aim of this article is to present a literature review in corporate governance and earnings management. Earnings management occurs when managers use judgement in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of company, or to influence contractual outcomes that depend on reported accounting numbers. Despite this, stakeholders are then likely to anticipate and tolerate a certain amount of earnings management. Obviously, managers could also use accounting judgement to make financial reports more informative for users. The main problem to effectively investigate the earning management arises because to prove an effect of earnings management the research must estimate earnings before the manipulation and then show the difference between the non-manipulated and manipulated results, which is not an easy task. The approach of the research is to identify managers ‘incentives to manage earnings and to estimate whether patterns of unexpected accruals, or accounting choice, are consistent with these incentives. The motivations of the earnings management are essentially three: Capital Market Motivations; Contracting Motivations; Regulatory Motivations. The capital market motivations are linked to stock price trend and can be divided into ordinary and extraordinary incentives. The ordinary incentives refer to incentives based on physiological tendency to show better performance than the real one to provide a strong perception of company and its trend. The extraordinary incentives instead occur in periods close to the realization of extraordinary transactions on the capital market and can be directed to the increase or reduction of the annual result. The contracting motivation occurs when the managers can be prone to managing earnings to or accounting data to obtain incentives from contract already signed, consider the contractual provisions associated with increases in remuneration. The regulatory motivations are the earnings management to bypass industry regulations, the earnings management to reduce the risk of investigation and intervention by anti-trust regulators, the earnings management for tax planning purposes. Truthful accounting information is such if it results the true economic and financial performance of the company and therefore is not affect by polices of earnings management. However, the discretion in assessment of the balance sheet items can be positive when used to ensure greater accuracy or to provide information on future cash flows to stakeholders. Ultimately, we can say that the problem of earnings management becomes opportunistic to obtain benefits or to mask negative aspects. Keywords - Governance, Financial Reporting, Annual Report, Earnings Management