A Comparison of Qualitative and Quantitative Methods of Detecting Earnings Management: Evidence from two Fijian Private and two Fijian State-owned Entities

Naidu, Dharmendra; Patel, Arvind

doi:10.14453/aabfj.v7i1.6

Cited by 8 publications

(6 citation statements)

References 31 publications

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“…Since Watts and Zimmerman (1978) proposed a number of motives for management behaviour (i.e. bonus plan, debt-equity and political cost hypotheses), studies on EM have been carried out in various developed and developing countries (Alves, 2012;Naidu and Patel, 2013;Goel, 2016;Abbadi et al, 2016). However, the following review of the literature will only focus on relevant recent studies pertaining to EM, financial crisis and International Financial Reporting Standards (IFRS) adoption.…”

Section: Literature Reviewmentioning

confidence: 99%

Earnings Management in Malaysian Companies during the Global Financial Crisis and the Coincidental Effect of IFRS Adoption

Ayedh¹,

Fatima²,

Mohammad³

2019

AABFJ

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This research examines earnings management (EM) behavior during the 2008 financial crisis in Malaysia. Both magnitude and direction of EM are studied and compared with EM during the pre-crisis period. In the case of Malaysia, the Malaysian Accounting Standards Board (MASB) adopted the international accounting standards, i.e. the International Financial Reporting Standards (IFRS) just two years prior to the crisis period. These standards could have some influence on EM during the global financial crisis period in Malaysia, thus are also taken into consideration in this study. Methodology: Data were collected from the Bloomberg database, and the proxy for EM was discretionary accruals (DA), which were measured using two models, namely the modified Jones model by Dechow et al. (1995) and the modified Jones model by Kothari et al. (2005). Findings: The empirical findings of paired-sample T-tests for 1,189 firm-years revealed that EM practices in the Malaysian companies were income decreasing during the crisis period (2008 and 2009), compared to the pre-crisis period (2005 and 2006) when the practices were income-increasing. The findings of this study are consistent with big bath theory. Furthermore, simple multivariate regressions support the findings that EM is significantly more negative or less positive during the crisis period. Nevertheless, the adoption of IFRS seems to suggest some deterring influence on EM practices of Malaysian companies. Research Limitation: The limitation of this study is that it uses rudimentary measures to proxy crisis period and IFRS in the regressions. Moreover, this study includes only one control variable (company size). Practical implication: the findings of this study would inspire more research on EM during abnormal periods, such as a financial crisis period, whilst taking accounting regulation into consideration, particularly in Asian countries. In addition, the policy makers might give more attention to ensure the enhancement of the adherence of IFRS adoption. Originality: The paper addressed a practical issue of EM during crisis period using two different proxies. In addition, the paper applied the integrated variable CriIFRS, which reflects the crisis period, taking into consideration IFRS adoption. Albeit preliminary, this is considered the main originality and novelty of the current study.

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Section: Literature Reviewmentioning

confidence: 99%

Earnings Management in Malaysian Companies during the Global Financial Crisis and the Coincidental Effect of IFRS Adoption

Ayedh¹,

Fatima²,

Mohammad³

2019

AABFJ

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“…Hong, Huseynov and Zhang (2014) used the simultaneous equation method to analyze the relationship between CA and its variable. Naidu and Patel (2013) studied the data for 20 years to take into account to study the effect of CA in FS. Charfeddine et al (2013) used models given by Dechow et al (1995), Kothari et al (2005) and Raman and Shahrur (2008) for their study to prove the presence of CA in the FS.…”

Section: Related Studies On Creative Accountingmentioning

confidence: 99%

Creative accounting a tool for financial crime: a review of the techniques and its effects

Gupta

Kumar

2020

JFC

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Purpose The purpose of this paper is to study the concept and procedure of creative accounting as how is it worked around and how it can lead to financial crimes. The procedure which are followed and which are the people who are involved and who are the victims of such crimes. The methods which are used to perform the action and how is it done. What are the findings of different researchers who have studied the same concept and how can it be curbed is the main purpose of the paper. Design/methodology/approach This paper is designed to find out the working of accounting policies and how the loopholes in the same can actually be taken into account, resulting in a certain number games which can be played around it, and to get the desired outcome in the preparation of financial statements. Findings Creative accounting, though legal and acceptable around the world, gives in the way to loopholes provided by the acts and rules governing the preparation of financial statements and eventually leading to financial crimes and hampering the economy as a whole. Research limitations/implications The limitations of this study remain to the fact that it is an empirical study, as a lot of papers and articles were studied before giving it a shape and reaching a conclusion. Practical implications Creative accounting though not illegal but the excess use of the same has given daunting effects on the financial statements and as a result have resulted into financial frauds and looting of peoples money throughout the world. Social implications Hard-earned money of the investors is looted and no action can be taken against as the mechanism and the legal bodies are still struggling to curb the problem, and thus it is very important to learn about creative accounting. Originality/value This study leads to the understanding of the growth of creative accounting and how it has resulted in accounting frauds leading to financial crimes in an economy.

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“…EM can be either positive or negative, or both. In the case of negative EM, business leaders can store earnings in profitable periods for use in unprofitable periods (Naidu, & Patel, 2013). Sometimes a company has a great quarter or year.…”

Section: Figure 2 the Em Externalitymentioning

confidence: 99%

A Challenge to Business Leaders to End Earnings Management

Call

2019

JAF

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It is time for users of corporate financial statements to demand an end to abusive earnings management (EM). EM has persisted for decades as Accrual-based and Real EM. Both flourish inside vague accounting principles and under the veil of corporate secrecy. The existence of EM is irrefutable; it is well-documented in professional and academic literature. What is missing from the literature are simple, commonsense strategies for eliminating EM or rendering it harmless. EM is bad for our financial system for many reasons. When business leaders abandon EM or use it sparingly, financial reporting will increase in quality.

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A Comparison of Qualitative and Quantitative Methods of Detecting Earnings Management: Evidence from two Fijian Private and two Fijian State-owned Entities

Cited by 8 publications

References 31 publications

Earnings Management in Malaysian Companies during the Global Financial Crisis and the Coincidental Effect of IFRS Adoption

Earnings Management in Malaysian Companies during the Global Financial Crisis and the Coincidental Effect of IFRS Adoption

Creative accounting a tool for financial crime: a review of the techniques and its effects

A Challenge to Business Leaders to End Earnings Management

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