Hey Friends,

Perhaps you’ve read some of the research on the application of accounting rules to “smooth” earnings. What is meant by smoothing earnings? Here’s a good description:

“Income smoothing is the shifting of revenue and expenses among different reporting periods in order to present the false impression that a business has steady earnings. Management typically engages in income smoothing to increase earnings in periods that would otherwise have unusually low earnings. The actions taken to engage in income smoothing are not always illegal; in some cases, the leeway allowed in the accounting standards allows management to defer or accelerate certain items.” […]