Regulators are scrutinizing whether companies are manipulating financial results to meet Wall Street targets.

“There are more incentives for being clever with earnings because of the overall economic scenario,” said Jack Ciesielski, owner of investment research firm R.G. Associates Inc.

“My money is on a few years from now, say 2026, we’ll see a lot more of these earnings management cases,” said Lenin Lopez, an attorney at insurance brokerage Woodruff Sawyer & Co.

“Smoothing can help investors,” said David Farber, an accounting professor at Indiana University’s Kelley School of Business and a co-author of the paper. “Companies that manage earnings well can have more predictable earnings and cash flows, and that’s reflected in the price of their stock.”

Peter Armbruster is currently serving a two-year prison sentence in Duluth, Minn., for an accounting fraud regulators said was designed to meet earnings targets. The former chief financial officer of Roadrunner Transportation Systems Inc. was convicted in 2021 on four criminal counts. His alleged conduct included hiding incurred expenses and failing to write-off millions of dollars in overvalued assets, the SEC said.

Read more: https://www.wsj.com/articles/sec-is-focusing-on-earnings-manipulation-by-companies-9bc2c592