Final answer:
Earnings management is linked to misstatements in financial statements for income smoothing, according to Levitt's statement.option b.
Step-by-step explanation:
Levitt's statement on earnings management is associated with the practice of manipulating financial statements to create a more favorable image of a company's financial health or performance. Specifically, it links the practice to misstatements in the financial statements for the purpose of income smoothing. This could involve a variety of deceptive tactics to tweak earnings reports, such as aggressive accounting choices or fraudulent record-keeping. However, the provided analogy of a businessman who seeks comfort in the idea that hard work is its own reward does not align with the unethical practice of earnings management. Instead, it suggests a belief in the intrinsic value of diligent work, without resorting to manipulation for personal gain.
In his statement on earnings management, Levitt links the practice to misstatements in the financial statements smoothing net income and a culture of gamesmanship. He suggests that these practices are used to report higher earnings each year material and meet or exceed financial analysts' expectations. Levitt's statement highlights the unethical and manipulative strategies used by some businesses to manipulate their financial statements and deceive stakeholders.