income smoothing

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  • Financial Institutions and Services
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The manipulation by companies of certain items in their financial statements so that they eliminate large movements in profit and are able to report a smooth trend over a number of years. The practice is pursued because of the belief that investors have greater confidence in companies that are reporting a steady increase in profits year by year. It is doubtful if any regulations can totally prevent this form of creative accounting.

Subjects: Financial Institutions and Services — Accounting.

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