financial reporting. For example, a comparatively small change in the estimates for uncollectible accounts can have a significant effect on net income, and a company using last-in, first-out accounting for inventories can increase net income in times of rising prices by delaying purchases to future periods. Detecting earnings management Earnings management may be difficult for individual investors to detect due to the complexity of accounting rules, although accounting researchers have proposed several methods. For example, research has shown that firms with large accruals and weak governance structures are more likely to be engaging in earnings management. More recent research suggested that linguistics-based methods can detect financial manipulation, for example studies in 2012 found that whether a subsequent irregularity or deceptive restatement occurred is related to the linguistics used by top management in earnings conference calls. Further reading Vladu, A. B., Amat, O., & Cuzdriorean, D. D. (2014). Truthfulness in accounting: How to discriminate accounting manipulators from non-manipulators, Economics Working Papers 1434, Department of Economics and Business, Universitat Pompeu Fabra. References Management accounting Accounting research Accounting systems Financial reporting