ABSTRACT
Income-smoothing spreads income between accounting periods, often by adjusting expenses (in the same way as depreciation of fixed assets, though less transparently). If in some years it understates ‘real’ profit, in other years it overstates it. Income-smoothing, however, may also represent a way for managers to try to present a more accurate trend of results over a period of years. Examples are providing for deferred tax (‘tax equalization’) [FRS19/IAS12], using the percentage completion method for long-term contracts [SSAP9/IAS11], and pensions adjustments spread out over the remaining working lives of existing employees [IAS19].
