In general, earnings management can be interpreted as an effort managers to intervene or influence the information in the financial statements with the purpose to deceive the stakeholder that wants to know the performance and condition of the company. The term intervention and deceive were used to the basis that earnings management is an act of cheating. On the other hand the earnings management is not an act of cheating, because these activities are still using accounting methods and procedures generally accepted and recognized.
In agency theory explained that the difference in interest between the stakeholder and the manager of the company. The stakeholder will demand managers to work harder to maximize the value of the company. On the other hand managers make serious effort to maximize the value of the company will be an opportunity for managers to behave opportunistically to increase the prosperity of himself.
Financial statements is the media of important information for the stakeholder, on the other hand is used by managers to perform earnings management. For example, if the manager wants the company's performance look good then the managers can raise the earnings information is higher than actual earnings. In addition, the order performance of the company looks be spread evenly then the manager will organize information in ways that are the corporate profits not going fluctuate during some periods.
On the basis of these thoughts earnings management activities can give negative impacts, the example are as the owner does not get real income, prospective investors are wrong in investing, lender wrong in giving loans, and as regulatory authorities were mistaken in appraising the health of the company so it will make policies that are not appropriate.
In managing a company's managers must behave honestly and morally to perform its obligations. If you want to get more material values or appreciation of the stakeholder then the manager can do other things such as increase sales, minimize production costs, expand market share, increase the quality of products or services. With it not only the managers that will increase welfare, but the stakeholder also will feel safe because companies achieve maximum value and its business directness is assured.
Sulistyanto, H. Sri. , 2008. MANAJEMEN LABA: Teori dan Model Empiris. Jakarta : PT Gramedia Widiasarana Indonesia.