This paper examines earnings management by dividend-paying firms in cases where premanaged earnings would fall below the expected dividend, and by non-dividend paying firms aiming to avoid reporting losses. We find that within the UK market the likelihood of upward earnings management is significantly greater in the former case than the latter, though both are drivers for earnings management. Large firms are less likely to upwardly manage earnings to reach dividend thresholds, consistent with prior UK evidence on the ability of the largest firms to avoid restrictive debt covenants. We also find that earnings management is more clearly observable through examining working capital discretionary accruals than through examining total discretionary accruals.

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Purpose -Accruals data reflect managers' judgements and estimates. The purpose of this paper is to examine whether they provide users of accounts with additional insight into a firm's dividends beyond that conveyed by cash flows alone. Design/methodology/approach -The authors employ regression analysis to examine the relative ability of earnings, cash flows and accruals to explain dividends. Findings -It is found that both cash flows and accruals (earnings) possess significant explanatory power for dividends indicating that, on average, UK financial statements provide users with improved insight beyond that conveyed by cash flows alone. Research limitations/implications -These results demonstrate the importance of accruals data for users of accounts. However, if accruals are manipulated for opportunistic purposes then their usefulness will likely be compromised and users of accounts will loose out. The study focuses on nonfinancial, UK dividend-paying firms only. Practical implications -These results provide direct evidence that UK financial statement data has significant explanatory power for dividend-paying activity, which may be viewed as good news. However, this paper reiterates the need for those who prepare and audit accounts to ensure that accruals truly reflect a firm's financial situation and are not being "managed" to artificially boost reported earnings. Short-term accruals are an obvious focus for such activities. Originality/value -The paper reports the first direct test of the link between disaggregated earnings components and UK dividends.

This study aims to identify the impact of the external auditor’s analytical procedures on the financial statements and reports for the detection of material misstatements of the Jordanian commercial banks. The impact of independent variables (profitability, liquidity, capital solvency and the employment of funds ratios) on the dependent variable (the detection of material misstatements) was measured. The dependent variable is represented by the earnings management, which is measured by the discretionary accruals. The quantitative standard method was used to analyse the financial statements and analytical procedures; moreover, the Jones Model was used to measure earnings management. Additionally, the multivariate linear regression model was used to test the hypothesis of the study, and to indicate the relationships between the variables. The study population consisted of five Jordanian commercial banks. The data was collected from 2011 to 2017. This study concluded that there is no statistically significant impact of the analytical procedures relating to the ratios of liquidity, profitability, solvency, and employment of funds that the external auditor could undertake to discover material misstatement of the financial statements of Jordanian commercial banks. Finally, the study recommended that auditors should be highly competent and deeply knowledgeable in using the analytical procedures to judge the fairness of financial data and be free of material misstatements.

The aim of this paper is to examine the ability of fair value accounting data to predict future operating cash flows up to three years ahead in Jordanian commercial banks, as well as to test whether there are significant differences among banks according to their size with regard to the ability of fair value accounting to predict cash flows. Multiple linear regression method is used to analyze the financial data of the study population, which consist of (13) Jordanian commercial Banks for the period (2005-2014). The study sample is the same as the study population. The fair value financial assets and liabilities are used in (3) models. The first model contains net financial assets; the second model includes total financial assets and total financial liabilities; and the third model contains the detailed components of financial assets and liabilities. The study concludes that fair value accounting data (through net financial assets, through total financial assets and total financial liabilities, and through items of financial assets and financial liabilities) have a statistically significant predictive ability in predicting future operating cash flows of Jordanian commercial banks for three subsequent years. The results also show that there are no statistically significant differences among Jordanian commercial banks according to their size with regard to the ability of fair value accounting to predict future operating cash flows up to three years ahead. Nevertheless, the predictive ability is greater for large-sized banks. This study recommends maintaining the continuity of applying fair value accounting by Jordanian commercial banks, and following any updates related to fair value accounting in the IFRS.