Income smoothing is pure dishonesty. Accounting is based on rules, conventions, and judgments. One of the most important is the consistency convention. If an accountant engages in income smoothing, look deeply: Some rules and principles have be bent to satisfy a particular income target

I think not

Dear Chong

It is too much difficult question and the answer in not easy. this is because there are many other related questions: (for example)

1- Are the accounting practices ethical?

2- Are IFRS or GAAP ethical?

3- for example, someone define true and fair view as follows: "True and fair view in auditing means that the financial statements are free from material misstatements". Is this means that the immaterial misstatements are ethical?

In fact, your question call us to rethink about accounting and auditing.

Regards

Income smoothing may not be such a pernicious form of management if it more accurately reflects recurring earnings potential. Likewise, dividend smoothing may merely reflect national norms for relations with shareholders.

Example - Nortel

high income smoothing measure cannot be explained by industry-wide factors as the sample of control firms is drawn from Nortel’s competitors. Even if Nortel is compared to a sample of firms drawn on the basis of size (since Nortel arguably was a conglomerate, transcending industrial characteristics), Nortel still exhibits extremely high levels of income smoothing.

Timothy Fogarty et al (2007), INSIDE AGENCY: THE RISE AND FALL OF NORTEL, Serge Bohdjalian,  John Molson School of Business, Concordia University 1455, de Maisonneuve West, Montreal, Quebec, CANADA H3G 1M8 

Generally speaking it is not ethical due to the bad reputation accompanied the income smoothing. However, there are exceptions and they should be treated on a case by case basis.

in my opinion if the accountants are very smart and take advantage of gaps in standards  and IFRS for his companies advantages , its legal way, but if he is doing illegal ways in Financial Statements for misleading the investors and owners its in ethical way.

Smoothing income by abusing the leeway in accounting principles is unethical.

You can find an answer in:

Ansotegui, Carmen, Fernando Gómez-Bezares y Raúl González Fabre (2014): Ética de las Finanzas, Desclée de Brouwer, Bilbao, chapter 10.

Smoothing earnings post-factotum is absolutely illegal and certainly immoral. However, anticipating the spike of the income and moving the sales forward is normal. On the other hand smoothing earnings does not give any real advantages to the firm. It is easier to smooth cash flows, which is absolutely legal practice commonly used   

Income smoothing is always unethical, because it gives a false impression of the reliability of earnings. Investors - and other stakeholders such as employees and long-term suppliers - are interested in the variability of earnings, not just the long-term average. This can be more acute if the distribution of annual revenues is positively skewed - if the bulk of revenues come from a few exceptionally good years, as another of these years may not happen again in time to avoid insolvency.

So far, there is no specific guideline on when and how could a firm smooth its income. In some situations or in a particular reporting period, a firm may need to smooth its income to avoid a slightly bad financial performance and escalated dipping in its stock price. Now, the question is how much is considered `slightly' and how frequent would stockholders and professional bodies tolerate these smoothing exercise. I believe materiality and quality of reporting will have to add into the equation. 

Whether ethical or not, income smoothing does exist and there are good reasons for it. Investors would be more confident in the prospects of a company with stable income rather than one that exhibits huge volatility. Unless this practice itself is made illegal, accountants have all the rights to use it to portray a desirable picture of their company as long as the principals are met. They have to be consistent, conservative and apply judicious reasoning in implementing it. 

The question of it being ethical is kind of off the road because accounting, as we know it is based on standards which provides the liberty to document things in more than one way for some disclosure. Companies choose the best one for them.

There are many issues in just the two terms 'income smoothing' and 'ethics'. What are ethics? As an accountant you have a professional set of ethics as set out by the professional bodies but you also have your personal ethics (which I usually think of as morals). Your professional ethics may clash with your personal morality and vice-versa. Income smoothing by its nature is designed to massage the decision-maker's perception of the performance of a firm. Is this ethical? I think it is inherently deceptive but that is a moral judgement by me and does not render it necessarily unethical. Income smoothing's ethical standing may depend upon who the decision-maker is and how the income smoothing impacts their decision-making. For a shareholder, income smoothing may prevent volatility in the value of their shares, this may benefit them and the firm. Indeed from a utilitarian perspective income smoothing may produce the greatest good even if it misleads certain users of the accounting information.

Well, as a CPA and former CFO, I'm confused: What do you mean by 'income'? Do you mean earned revenues or do you mean NET Income? Let's start there.

Thanks Dr. Miller. I agree with you that we need to return to the basic of what exactly the preparers are smoothing on. Would it be revenue or net income. In most, if not all cases, financial users only focused on the bottom line that is the net income. In the smoothing process, preparers of financial statements may need to `smooth' all the items that appeared on the income statement, and not surprisingly, they may even transfer some to/from the balance sheet. The whole exercise is to make the reported income and financial statements look nice and rosy, so that no one will face the music.

Ethics and regulations are reminders to the accounting and auditing professions. At the moment, there is no regulations on the extent of allowing or stopping the smoothing exercise. With that, we are left with ethics. Apart from ethics, is there any other variables that would stop or add incentive to smooth income?

Income smoothing could be alright for private companies or LPs. Shareholders are a part of the exercise undertaken by the Accountants.  But when it is a public listed company, what happens to smoothing especially undertaken in the current economic conditions. One may not get the opportunity in subsequent year(s) to repeat the exercise again.  The volatility could be huge in that case. Accountants, Financial Consultants have to use constraints before indulging in such an exercise.  It is neither ethical nor correct to do that - any study of the financial reports for future trends will be misleading.

@Prof. Chong: Thank you, sir. I thought it was Net Income, but 'Income' by itself is ambiguous. For instance, QuickBooks, which is the dominant accounting-software package for middle market private companies, labels as 'Income' what accountants rightly call 'Revenue'. I continue to be astonished that QuickBooks clings to its outmoded, ambiguous, and misleading label.

To your question: Ethics tend to be personal. We would all agree, I think, that being ethical means 'doing the right thing'. What that 'right thing' is will vary across countries and, in a given company, among individuals.

Speaking as one who is the former CFO of one company, the ex-Controller of another, and a CPA, I find 'Net Income Smoothing' (a.k.a. 'Earnings Management') unethical and unacceptable in any context. Others may differ, of course, and I accept that. But that is my view.

I think it's useful, while we're on this topic, to mention the research that has been done on 'Earnings Management'. It consistently shows that both the number of accruals and their magnitude vary directly with the practice of earnings management. The research also shows that public companies that rely heavily on accruals that affect Net Income tend to have higher 'betas' than companies that don't.

For those who might not be aware of beta, it is a measure of what is called 'systematic risk' (a.k.a. 'market risk'). It is a key aspect of the Capital Asset Pricing Model (CAPM). Simply stated, a given stock's beta is found by comparing its price volatility relative to the value of an underlying index, typically the S&P 500. A stock with a beta > 1 is deemed to be more risky (a.k.a. 'more volatile') than the market as a whole. On the other hand, stocks w/betas < 1 are perceived as less risky.

@ Vinod: I respectfully disagree with your assertion that "Income smoothing could be alright for private companies or LPs." Such accounting machinations would most often affect (a) bonuses and/or (b) loan covenants. The first is uethical, and the second might well be illegal. Contrary to what many non-accountants believe, generally accepted accounting principles (GAAP, pronounced 'GAP') allow managements a significant level of judgment in how they 'report their numbers'. 

There's an old joke that highlights this: A business owner needed to hire a new Controller. He narrowed the group of candidates to three individuals, each with different backgrounds. The owner conducts a 'structured interview' with each candidate; that is, he asked each candidate the same set of questions. The last question was this: "What is 2 + 2?"

The first candidate, who had an undergraduate degree in engineering combined with an MBA, said, "Two plus two equals four point zero zero zero zero. There's not a shred of doubt about it. It's as sure as the sun coming up in the morning."

The second candidate had begun his career in marketing, but that went back to school, got an accounting degree, and passed the CPA exam. But he still had a flair for marketing. When the owner asked him, "What is 2 + 2?", the marketing guy said "It's FIVE. We can take it to market tomorrow and sell the hell out of it!"

The third candidate, of course, was a pure accountant - master's in public accounting, CPA, ex-auditor. The owner ran through his list of questions and then said, "I have one last question for you: What is 2 + 2?"

The accountant began stroking his chin, obviously deep in thought. Finally, his face brightened. He leaned forward and said, "It depends. What would you like it to be?"

Hi Warren,  my note ends with the assertion that it is neither ethical nor correct to indulge in income smoothing.  I picked up from the earlier suggestions and continued from there - my use of the words 'could be' instead of 'is' is in reference to such discretion used by some accountants under influence of the shareholders in private companies. I reiterate, it is unethical and incorrect.  Companies are supposed to follow consistently the same method of accounting year on year - smoothing could mean sacrificing some of the accepted accounting principles. Wherever there are different income tax slabs, would not such an exercise be illegal also in those countries ?

Hi, Vinod - At least where public companies are concerned, I respectfully disagree somewhat with your assertion that "Companies are supposed to follow consistently the same method of accounting year on year - smoothing could mean sacrificing some of the accepted accounting principles." Public companies have high-priced, high-quality accounting talent who understand GAAP/IFRS. Such individuals are highly unlikely to do anything that would get would their auditors' attention and raise questions about changes in accounting methods. Again, accruals are where the mischief resides.

Now, as to your assertion of what "is unethical and incorrect," I disagree. What is 'unethical' in some countries is perfectly acceptable in others. It's a function of differences in cultures. Human nature doesn't vary around the world, but what is ethically acceptable sure does. The differences are real.

To that point: the International Accounting Standards Board (IASB) loves to brag that more than 100 countries around the world have adopted IFRS. What IASB does NOT say is that all but two of those countries have adopted the parts of IFRS that they like. So the much-ballyhooed FASB/IASB trumpeting of 'global comparability' of financial statements is totally bogus. It will never happen, nor, for the sake of citizens in the United States, should it.

Those of us who live in the U.S. should be grateful for that. IFRS is a demonstrably inferior set of standards compared to GAAP. If the U.S. were to adopt IFRS, the quality of financial statements here would deteriorate. That would shake investors' confidence, which would raise the cost of equity capital, retard economic growth, and increase the 'permanent' component of the U.S. unemployment rate.

Hi Warren

I agree that global comparability is a pipe dream but what makes IFRS standards demonstrably inferior to IFRS? The past indicated serious deficiencies in both at of standards. 

@Arabella: What's inferior about IFRS?, you ask. Time precludes me from diving too deeply into a response, but here are just a few markers, any one of which, by itself, makes the case that IFRS is inferior to GAAP:

Hope this is helpful.

Implementation issues are separate from the underlying quality of accounting standards.  Enforcement and oversightThe IASB role is not to enforce standards. 

To be ethical, one must seek to help and avoid harm to others. Because accounting is a man-made creation, which artificially divides time into distinct periods, there is no accurate way to measure net income while a company is still in existence (and perhaps even when it is defunct).

We can use judgment to estimate net income, and those judgments/estimates should be as unbiased as possible (if our goal it to get as close to representing reality as is possible). Aiming to paint a company in the best light, or give investors the comfort of smoothing earnings appears to me to be dishonest (given the goal of accurately representing reality).

Other goals may be worthy as well, and they may have their own ethical implications.

Thanks Dr. Taylor. I agree with you that any acts that may mislead or cause harm to others constitute unethical acts. However the audit and accounting professions have yet to define the threshold or circumstance that may consider unethical..Has anyone come across any specific guideline on smoothing income or revenue?

Gin

@Gin: In the bad-old days 30+ years ago, the Detroit-based automobile manufacturers were notorious for 'channel-stuffing' at the end of each quarter. In other words, they knew if they could just get cars shipped to dealers, their bonuses would go up. They also made sure that they produced more units than they sold, thus ensuring that the number of units inventory increased AND taking more manufacturing overhead off the income statement and burying it in finished goods.

There have also been instances of other manufacturers engaging in 'channel-stuffing'. They include, but are not limited to, Coca-Cola (in Japan), Bristol-Myers Squibb, McAfee, Krispy Kreme, and Rayovac.

Warren, I like the phrase `bad old days...' These notorious stuff have taken place not only in the West, but also elsewhere. The only different is these cases were not reported especially in Asia where I was a supervisor/manager of one of Big X (lost count how many Big ones were there at that time) and these had happened prior to those `old days'. At that time, even in the present, maximum penalty for the culprits is being struck off from the professional body and may be a little fine. The bottom line is these culprits remain at large.

I agree with you that the engagement partner should sign both as an individual as well as in the name of the firm, but would this deter the malpractice? Hopefully it does.The audit and accounting professions need to define the extent of smoothing the income that is deemed ethical, otherwise the legal profession will step in to interpret for us.

Any views and thoughts? Let us continue with the dialogs. I love to hear from you all.

Income smoothing is pure dishonesty. Accounting is based on rules, conventions, and judgments. One of the most important is the consistency convention. If an accountant engages in income smoothing, look deeply: Some rules and principles have be bent to satisfy a particular income target

While I agree w/your statement, "Accounting is based on rules, conventions, and judgments," it is in the last one--judgments--that accountants can decide to take actions with which others might disagree. That does NOT automatically make the actions they took 'dishonest'. In free societies, people disagree, sometimes strongly. That is especially true in financial matters. Of course, there is dishonesty - no two ways about that. But a disagreement about what accounting methods are appropriate in a given situation is just that: a disagreement. It can still be honesty and above-board.

I will stipulate, as I did previously, that 'accruals' tend to be the primary source of bottom-line manipulations and mischief. But they're not the only source: there's channel-stuffing, assuming high rates of return in pension calculations, and so on. So long as accruals and pension-related assumptions are disclosed, and channel-stuffing can be detected, then issues can be raised and, if necessary, pursued, as well they should be.

In addition, professional organizations--of accountants (American Institute of CPAs, various country-specific organizations of Chartered Accountants, etc.) and of financial professionals (e.g., CFA Institute)--must enforce their ethical standards without fear or favor. They should publicly identify and call out transgressors by name in hopes that, notwithstanding whatever penalties an organization imposes on wayward members, public shame might also act as a deterrent in the future.

I would think it ultimately all comes down to intent, regardless of the definitions or the rules and procedures. As I think has been pointed out before in this discussion, accounting is a social practice, a language humans have invented to allow communication of financial (and more recently social/environmental) information. We use language for many reasons, the language of accounting can be used to assist decision making, it can also be used to influence decision making. Like politicians we can use the finer points of our language to impress our constituents, sway our constituents and/or outright deceive or lie to our constituents. Ethical standards are put in place by the professional bodies but to a large extent they depend upon the accountant self-regulating their behaviour through their personal ethical/moral values. If income smoothing occurs the I believe that the prepare of this information needs to ask themselves the questions: why am I undertaking this process? How does it improve decision making? Does it meet professional ethical standards and my personal standards?

Equal opportunity to old aged

Key objectives of contributory social security programmes, such as old-age pension schemes, are to provide income smoothing across the life course and insurance against the risk of longevity for workers. Most old-age social security programmes are financed by mandatory monthly contributions paid by insured workers, with matching contributions paid by their employer

http://www.iopsweb.org/Extending%20pension%20and%20savings%20scheme%20coverage%20to%20the%20informal%20sector.%20Kwena%20and%20Turner%20ISSA%202013.pdf

@Arabella: If you don't mind me asking, how do outsiders make an objective determination of 'intent'?

@Krishnan: When all else fails, read the thread of comments that preceded yours. Clearly you did NOT do that here. Your comment and the link are irrelevant to this discussion. "Kenya's MBAO Pension Plan" has nothing--ABSOLUTELY ZERO--to do with what we're discussing here. Since you appear not to have taken the time to read any of the comments that preceded yours in this thread, please do so now, and then delete your post so that serious professionals need not waste their time.

@Warren it is almost impossible to externally determine intent but the preparer knows! The courts would determine intent on the facts. Maybe this is the heart of the problem, trust and intent. 

@Filippo: As I said above, the problem I have with an argument like yours is how to determine intent. That problem remains, notwithstanding.your rigid and unrealistic statement. If 'income smoothing' is achieved--perhaps unintentionally--through consistent accruals, tell me what your objection is, please.

This is interesting. Intentions seem to be the determinant of ethics.

This may not be true in some cases. For example, a preparer of financial statements may purposefully include a post-balance sheet revenue that arrived a few days after the balance sheet date. Strictly this is not in compliance with substance over form. Without smoothing the income, the bottom line looks out of analysts' and lenders' expectations. This is a temporary device due to a slight timing issue.

If the preparer does not smooth the income this may cause chaos to the PE and other related ratios. The effects could be devastating to the firm, in some cases for a short while, but others a long period. Would this intention of smoothing the income deem unethical?

Any other factors that stakeholders need to consider when come to smoothing of income is deemed ethical?

@Filippo: A question, if you don't mind: Have you served as full-time CFO or Controller of a business? I'd appreciate knowing because I think it would help me better understand your perspective.

@Gin: I don't understand your last question. If you'll read it aloud, I think you'll 'hear' why I don't. Help, please, sir.

Thanks Warren.

Let me rephrase it: Under what circumstances, situations, events (if any) that smoothing income is deemed ethical? I am not here to trick anyone but would want to understand the mindset of preparers when they prepare the financials.

Appreciate if anyone could help.

Thank you, Gin. I really appreciate the clarification. I need to ask you the same question that I asked Filippo: Have you served as full-time CFO or Controller of a business? I'd appreciate knowing because I think it would help me better understand your perspective.

I'll then be able to fashion some sort of response that I hope you and he, and perhaps others, will find helpful. Thanks in advance for your help, sir.

The fundamental of income reporting is providing useful information to users. With accounting standard and principles, accountants should be given the flexibility to exercise professional judgement in discharging their duties including income smoothing if it deems necessary particularly in helping users to predict future income. In any case, if income smoothing is undertaken with the intention to  defraud then it is purely unethical. 

Greetings, all: I just came across this piece in Accounting Today. Comments, anyone?

http://www.accountingtoday.com/news/audit-accounting/study-links-earnings-manipulation-to-success-in-corporate-accounting-75459-1.html

Dear Warren, thanks for sharing the link.

Gin

Dear colleagues,

Thanks for sharing your thoughts and suggestions.

What if a firm fails to smooth its earnings in a particular quarter, this will lead to a poor EPS reporting and eventually plummeted stock price. To avoid the chain reaction,  the management makes minute adjustments to bridge the earnings gap using part of the next quarter's revenue. Would this constitute smoothing the earnings?

Gin

Earnings management could go either way - a company may smooth downward, underreporting a good quarter, but still reporting a profit. This wouldn't necessarily cause a plummeting stock price.

But the bigger questions are: 

1- why is stock price the focus of financial reporting, when so little of what is reported on financial statements accounts for changes in the price? Price is affected by so much more than a company's performance - it fluctuates constantly, while performance does not. 

2 - what are we reporting when we report earnings? can earnings be measured anywhere close to accurately?

The accrual concept is well established in accounting and finance and stipulates clearly that it is only income from the current quarter whether received or not that should be recognised. Given this scenario, using  part of the next quarters revenue to bridge the earnings gap will be an obvious breach of a time honoured accounting principle.  Moreover what is" minute " is relative and will certainly lend itself to abuse. The consolation is that from the efficient market perspective whatever negative" chain reaction" will reverse sooner than latter as long as the company remains well managed and also remains profitable.

Dear Professor Chukwunedu and colleagues,

Thanks for sharing your comments, suggestions and inputs. I agree that the accrual concept itself is clear, but this does not mean that management follows the concept strictly. Postponing revenue has become an avenue for the management to smooth the earnings. The excuse is of course, failure to do so its stock price will plummet and the chain reaction will follow. The question is would/should this pattern of smoothing the earnings constitute unethical? Should management disclose the amount in the footnote of the financial reports? Any additional penalty that regulations should impose upon the firm and management?

Please share your thoughts.

Gin

income smoothing even though argued by some scholars to be unavoidable in my own opinion is illegal as accountants and auditors that are supposed to be apostles of integrity, accountability and probity are found wanting in the discharge of their responsibilities because of the need to impress their employers should have a re-think if we are to move the profession forward based on truth and honesty. Management and policy makers are expected to uphold the truth at all times if previous calamities are not to befall the financial world again, especially in this age of information and communication technology.

Since neither Filippo Salustri nor H. Gin Chong has responded to my question whether either of them has EVER served as a CFO or Controller, the obvious inference is that neither has done so. Therefore, the probability that they know how these jobs are done is somewhere between slim and none--and 'slim' just skipped town. More important, they seem to think that accounting principles (a) are in concrete, and (b) allow only one way to account for a given transaction. Neither (a) nor (b) is true. But if one has spent one's entire professional life in academe, s/he has not faced the wrenching real-world dilemmas with which senior financial professionals often must contend.

In no way am I suggesting that the accounting choices a company makes should do anything other than comport, as best they can, with the facts and circumstances that gave rise to a given transaction. The problem is that, in the business world--and I appear to be the only person in this conversation so far who has been both a full-time academic and a senior financial professional in four profit-making businesses (excluding my own, where I've worked since 1991)--choices are not clear-cut. Therefore, reasonable and honest professionals can and will disagree as to how to account for them.

Accounting choices have real-world consequences. They affect families, careers, children's college educations, and individuals' ability to meet financial obligations. Those who have spent their careers in academe are holding forth about matters about which they have no clue. Let me give one simple example: the recognition of revenue that has been deferred. Obviously revenue should be recognized when it is earned. But it should also be matched, as much as possible, with the expenses incurred to generate that revenue. Those expenses are seldom consistent from one period to the next. Thoughtful professionals often disagree about what those expenses are and also when they should be recognized. That is why it is always a good idea to bring a company's auditors into revenue-recognition discussions before consequential decisions are made. It is not always possible for everyone to be on the same page, but it is crucial to make the effort and to be transparent about it.

I wish that those holding forth about what's "legal" and what's not had a track record of having dealt with these problems in bottom-line-focused world of business, rather than from the protected confines of academic idealism. CFOs and Controllers don't have the luxury of tenure.

In short, cut the nonsense, guys.

Get a job as a CFO or Controller, and we'll see how long your pontificating--and maybe your employment--lasts. If the former continues, the latter won't. These decisions are often not clear-cut or black-and-white. If you think otherwise, then I'll bet that you have not had to wrestle with the difficulties of complying with accounting principles, whether they are GAAP or IFRS--with your employment riding on making the right decisions. That doesn't make you bad people--I believe you're not. But that doesn't alter the likelihood that you are disconnected from the difficulty of accounting decision-making in real-world, ambiguous circumstances.

Any analysis done based on compromised financial reports, will also be misleading - most of the businesses around the world are MSMEs and not public companies. All such MSMEs need honest opinion from the consultants as to where they are heading.

To my mind, it is not only unethical, incorrect but also should be avoided by MSMEs owners who rely upon Business/Management Consultants to advise strategies to stay on the right path to growth.

I think the following paper may help you in this regard. Please check it out.

Bank Income Smoothing in South Africa: Role of Ownership, IFRS and Economic fluctuation

April 2018

Peterson K Ozili

Erick Outa

hope this article is useful

Gin Chong "Is income smoothing ethical?"Journal of Corporate Accounting & Finance,Issue1,November/December 2006,Pages 41-44.( Wiley Online Library,https://onlinelibrary.wiley.com/toc/10970053/2006/18/1)

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Good for picturing the reality on the state of affairs happening in the corporate world in addition to the flow of discussion, there are certain other points that gets into the big picture of the income smoothing ethicality...

Income smoothing is a manipulative technique for murdering the ethics.

All bad is accommodated as acceptable practice and thereby VUCA emerges and encourages fraud.

With digitalization of economic transactions, linking GST on all transactions, imposing stringent monetary controls, discouraging cash transactions, penalizing the auditors lining with the tax evading or moderating organizations, intensive and accountable 3rd party auditing, Government for the people approach etc., can iron out this illegal cancer which affects the economic fabric.

When the money grows leaps and bounds the core function of the organization becomes secondary of importance and always leads to daisy imbalance to virtues of the organization fundamentals.

The undisclosed earnings are “Black money” which finds to play in money laundering, hedging and derivatives.

The revenue of the government needed to provide welfare support is eroded.

Thank you

Krishnan Umachandran

Hi Gin Chong

Associating a minor income with an ethical issue can not be considered an ethical guarantee. Similarly, a higher income should not lead to the conclusion of being contrary to ethical practices. Perhaps starting from scales of competitiveness and efficiency that may reflect income with shared benefits allows an ethical reflection and even as an example of study. I believe that ethical reflection in these cases should not stop at whether it is high or low income, but what is able to achieve this income in terms of own benefits and third parties involved.

Raising the incomes of the poor is a necessity. It is more than ethics.

I think increasing income does not have anything to do with ethics

التالية

In fact, when the ethical values and economic development support each other, the economic and social level of society increases.

Although some individual business managers tend to forget ethical conducts in doing business and so engage in some unwholesome attitude. Income smoothing is a manipulative technique engaged in by unethical business managers which to my understanding is very much unethical.

زيادة الدخل مهمة تقع على عاتق كل طموح

No

In my opinion, no its not ethical.

Valued colleagues - Unlike most of you, I am a financial professional. Have been for 44 years; among other jobs, I've been the CFO of one company and the Controller of another. As a result, I think I have a ton of knowledge about finance and, especially, accounting. :Let me elaborate on the latter briefly.

Those who do not have in-depth knowledge about accounting tend to believe that it is black-and-white and that there is only one (1) way to account for a given transaction. That is true only for the most basic and simple of transactions, which, in the scheme of things, are relatively few. We live in a complex world, and sound accounting practices reflect that complexity.

Underlying every business transaction is a set of assumptions. Those tend to drive the viable accounting choices. If the assumptions change, so do those choices. These choices are almost never--NEVER--black-and-white. That is something that tends to surprise those who lack deep accounting knowledge. They think it's about numbers, and, therefore, it's black-and-white. Nothing could be further from the truth. Besides living in a complicated world, we live in a gray world, too. Again, sound accounting practices reflect that 'gray fact'.

In addition, most publicly held companies, at least in the United States, tend to prefer consistency in reporting financial results over inconsistency. They prefer that because the community of financial professionals that analyze their results are watchdogs for investors. That community blows the whistle over "surprises" in financial results and performance. Because (a) accounting choices are almost never black-and-white and (b) the blow-back from the analyst community when companies post a financial surprise, then (c) companies prefer consistent trends in reporting their results over inconsistent "surprises."

That preference, in turn, leads, inevitably, to "income smoothing." By "income smoothing," incidentally, I'm talking about making legitimate accounting choices--those which are supported by facts and circumstances--that show a trend, usually upward-sloping, in results. This is what is called "income smoothing." It is legitimate, and nearly every publicly-held company of any consequence here in the United States does it. It is NOT unethical. It is about accounting choices, which, contrary to popular beliefs, are seldom cut-and-dried and black-and-white..

To be sure, bad choices will get blow-back from the analyst community, as well such choices should. But 'income smoothing' enables markets to perform better and for companies to attract confidence from the investment community. That's as it should be, in my less-than-humble opinion.