Please click on the following link to read “Focus on Ethics”: “Accruals Managem
Please click on the following link to read “Focus on Ethics”: “Accruals Management” 05.03.2022-00.46.30 Discussion Question: "Why might financial managers still be tempted to manage earnings when a clawback is a legitimate possibility? Peer 1 Raquel: Managers may be tempted to manage earnings when a clawback is a legitimate possibility because the company still has to prove that the manager was in violation of their contract. Managers also understand that the company needs to prove that they committed the crime, and is actually charged and convicted. While clawbacks are designed to give the company recourse in the event of fraudulent activity, companies will need to prove the fraud, and even still may have no recourse. For example, in 2020 there was a clawback revolving around Goldman Sachs and illegal activities with Malaysian funds. Mangers involved in the scandal earned higher salaries and bonuses. By the time the activity was discovered and settled, some of the people involved were no longer employees of the bank. Goldman Sachs will now have to determine whether to continue to pursue action to get the monies returned, and this can be futile with high litigation costs. It is their obligation to recover the money, and if the monies have already been used there is not much to be done that would involve the return of the money. Managers are aware of what is needed to act upon the clawback so it just isn’t always enough to make them forgo managing the earnings. Peer 2 (Have not posted yet:

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