THE PROFIT AND ITS MANIPULATIONMasca Ema Universitatea “Petru Maior”, Tg. Mures, bld. 1 Decembrie 1918, nr. 13/10, 0265266237, E-mail: masca_emayahoo.comIn the light of recent corporate scandals, accounting today as an objective way of presenting economic reality is suffering from a real crisis of confidence. Central to the Anglo-Saxon system of corporate governance, it has been pushed into the public spotlight, where its impartiality and objectivity is being questioned.Keywords: profit, manipulation, managementThe Positive Accounting Theory and profit manipulationEven though most of the scandals have taken place in the United States, the crisis of confidence has had an impact far beyond U.S. borders, as the Anglo-Saxon system of governance is spreading throughout continental Europe and particularly in France. In order to contain the crisis, the United States and France are committed to institutional and legal reform. Moreover, those identified as having perpetrated such manipulation, essentially auditors and financial directors, have been legally sanctioned. We should nonetheless question whether these legal and legislative measures will be sufficient to restore long-term confidence in the system. Bernard Collase is asking himself if shouldnt the social dimension of the issue be taken into account? Isnt it necessary first to understand the reasons behind profit manipulation and how it functions before changing legislation?Tenants of Positive Accounting Theory have represented the mainstream of accounting research since the early 80s. They see profit manipulation, which they euphemistically call “earnings management”, from an exclusively economic standpoint.How and why do management controllers take part in profit manipulation?That shareholder pressure leads management controllers to manipulate their firms profits. Going beyond individual responsibility, the organization imposed on a company by its shareholders with the aim of respecting criteria of Anglo-Saxon corporate governance is itself the cause of accounting manipulation at all levels.First, we will define the notion of “earnings management”, present a range of practices, and assess the role of management controllers in this phenomenon. We will observe that management controllers implement different methods for manipulating profit.Skill in profit manipulation enables management controllers to gain legitimacy in the eyes of managers working in a cultural context that is traditionally difficult for them. They soon become indispensable strategic allies playing the role of arbiter between the markets short-sightedness and the imperatives of operational management.Schipper proposes a representative academic definition of profit manipulation that she refers to as “earnings management”, similarly to the vast majority of literature on this subject. She defines profit manipulation as: “a purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain”. Healy and Walhen identify two main incentives for profit manipulation: contracts written in terms of accounting numbers; and capital market expectations and valuation.The first perspective is supported by the tenants of Positive Accounting Theory. They suggest that contracts between the firm and its stakeholders create incentives for earnings management. Precisely, they propose three hypotheses: the bonus plan hypothesis (directors who benefit from bonuses tied to profits are more prone to using accounting techniques that transfer future profits into the present); the debt/equity hypothesis (the more a company is in debt, the more it is in its interest to focus on present earnings because debt covenants, common in the United States, require certain levels of profitability); and the political cost hypothesis (the larger a company, the more it is in its interest to postpone its profits until a future accounting period to face any risk of burdensome legislation being implemented).The second perspective suggests that the goal of earnings manipulation is to be in line with the expectations of the financial markets. Dechow and Skinner underline that academics have mainly focused on contractual incentives, much more than on the influence of capital markets on earnings management and that “this focus has been sustained by the assumption that markets are efficient”.Profit manipulation can take two forms: earnings management and falsification. Earnings management involves postponing the period affected by an operation by changing the measurement methods, speeding up a sale or delaying a purchase.Here, we can make out in the background earnings management as limited to manipulating accounting figures,rather than to profit manipulation that involves acting on real business situations. Falsification involves disclosing wrongful data. In this case, such actions may be considered criminal. Howe