Question

studies seem to suggest that management tends to make accounting changes and or manipulate discretionary accruals to

Answer 1

Answer: D. avoid violation of debt covenants.

Step-by-step explanation:

Going by the Accrual basis of Accounting, expenses that are related to a period must be recorded in that period regardless of if it is paid or not.

Discretionary accruals are those that the company reports subjectively because it is not necessary that these accruals should be accrued.

This allows management to manipulate these as they like and they usually do this to avoid violation of debt covenants which usually place restrictions of some activities of the firm. They therefore use these discretionary accruals to navigate these restrictions.