A Brief Analysis Of The Real Earnings Management ( Rem )...

A brief analysis between the Real Earnings Management (REM) and Off-balance Sheet Financing (OBSF) Introduction According to the paragraph 9 of AASB 101, the purpose of financial statements is to provide information referred to the financial position, financial performance and cash flows of an entity which is valuable to a wide variety of users in making economic decisions. Nevertheless, real earnings management (REM) and off-balance sheet financing (OBSF) have a negative impact on financial statements reflecting substance and economic reality of transactions. The paper provides a brief analysis of the implications of real earnings management (REM) as well as off-balance sheet financing (OBSF) which are relevant to the valuation of a manufacturing company. It begins with the introduction of the concepts of REM and OBSF respectively, followed by lists of different major types of REM and OBSF. Afterwards, it distinguishes the two methods from other ones used for financial statement manipulation. Then, the essay illustrates an explanation related to the motivations for the financial statement manipulation and the final part is relevant to methods for a perspective investor on how to detect the occurrence. Concepts of Real Earnings Management (REM) and Off-balance Sheet Financing (OBSF) Real Earnings Management (REM) Real earnings management is defined as the real activities manipulation that diverges from the company’s regular operational practices with the primary purpose of