Adelphia Communications Corporation's fraudulent financial reporting takes place in the context of earnings management. The management changes the accounting policies, or the way estimates are calculated with the intention to improve the firm’s results. Fraudulent financial reporting occurs due to personal incentives, pressures from the market, lack of ethics, deliberate compliance with the projections of financial analysts or attempts to affect the price of stock (Beasley, 2000). Fraudulent reporting can be controlled with external auditing, regulations and an independent board of directors. However, an ethical corporate culture is the main prerequisite for fair financial reporting.
Reference
Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2000). Fraudulent financial reporting: Consideration of industry traits and corporate governance mechanisms. Accounting Horizons, 14(4), 441-454.
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