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Management might be incentivised to understate sales because: A. They are paid an incentive bonus. B. The may wish to "push" sales into the next year because they do not have the opportunity to achieve a sales bonus in the current year. C. None of these situations apply. D. They have a fixed remuneration.

Question

Management might be incentivised to understate sales because: A. They are paid an incentive bonus. B. The may wish to "push" sales into the next year because they do not have the opportunity to achieve a sales bonus in the current year. C. None of these situations apply. D. They have a fixed remuneration.

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Solution

The correct answer is B. "They may wish to "push" sales into the next year because they do not have the opportunity to achieve a sales bonus in the current year."

This is because if management cannot achieve a sales bonus in the current year, they might be incentivised to understate sales and push them into the next year when they have a chance to earn a bonus. This is a form of earnings management, where managers manipulate company's earnings to meet certain financial targets.

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