Detecting Real Activities Manipulation: Beyond Performance Matching

Abacus ◽  
2021 ◽  
Author(s):  
THOMAS A. GILLIAM
Keyword(s):  
Real Activities Manipulation

A neural network approach to measure real activities manipulation

2015 ◽  
Vol 42 (5) ◽  
pp. 2313-2322 ◽  
Author(s):  
Jesper Haga ◽  
Jimi Siekkinen ◽  
Dennis Sundvik
Keyword(s):  
Neural Network ◽  
Network Approach ◽  
Neural Network Approach ◽  
Real Activities Manipulation

The effect of real activities manipulation on going concern audit opinions for financially distressed companies

2018 ◽  
Vol 17 (4) ◽  
pp. 514-539
Author(s):  
Hongkang Xu ◽  
Mai Dao ◽  
Jia Wu
Keyword(s):  
Audit Quality ◽  
Positive Association ◽  
Content Type ◽  
Going Concern ◽  
Accruals Management ◽  
Reporting Decisions ◽  
Going Concern Opinion ◽  
Distressed Firms ◽  
Real Activities Manipulation ◽  
Auditor Reporting

Purpose This study aims to examine the effect of real activities manipulation (RAM) on auditors’ decision of issuing going concern (GC) opinions for distressed companies. Design/methodology/approach This study estimates and examines three types of RAM: reduction of discretionary expenses, sales manipulation and overproduction. It investigates the effect of RAM on auditor reporting conservatism by including the three measures of RAM methods in logistic regressions that explain the issuance of going concern opinions. The authors perform the analysis specifically on distressed firms for 2004-2013 period. Findings This study finds a significant and positive association between RAM and the likelihood of receiving going concern opinion in the financial distressed firm sample, suggesting that client’s abnormal business activity affects the auditor reporting conservatism. Practical implications This study provides evidence that auditors make going concern reporting decisions in consideration of the client’s abnormal operating decisions and management’s opportunism. Originality/value Recent literature argues that auditors have little recourse other than to resign if a client uses RAM to impact earnings or the financial statements, and hence the enhanced audit quality in the post-SOX period is due to the shift from using accruals management to RAM (Cohen et al., 2008; Chi et al., 2011; Kim and Park, 2014). The evidence provided in this study indicates that auditors report more conservatively (rather than simply resign) in response to the aggressive RAM.

scholarly journals Competition And Real Activities Manipulation

2019 ◽  
Vol 35 (1) ◽  
pp. 1-16
Author(s):  
Sudip Datta ◽  
Mai Datta ◽  
Vivek Singh
Keyword(s):  
Production Costs ◽  
Price Setting ◽  
Pricing Power ◽  
Real Activities Manipulation

We enrich the research on income manipulation by establishing a link among companies’ price-setting control and the extent of real activities management. Examining three types of real activities management, the results reveal an interesting asymmetry in how companies employ income manipulation based on their pricing strength. We discover that companies with weaker price-setting clout employ larger manipulation of sales and production costs as a tool to manage income, while firms with more dominant pricing power prefer managing discretionary expenses.

The Effect of Board of Director Composition and Audit Committee Expertise on The Real Earnings Management in Indonesia

2020 ◽  
Vol 2 (1) ◽  
pp. 110-117
Author(s):  
Feby Astrid Kesaulya ◽  
Weny Putri ◽  
Dewi Sri
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Good Governance ◽  
Real Earnings Management ◽  
The Real ◽  
Board Of Director ◽  
Good Corporate Governance ◽  
Board Director ◽  
Real Activities Manipulation

The Objective of this research was to prove that the implementation of good corporate governance will have an effect on the real activities manipulation which was done by the management. The implementations of good governance used by this research are board of director composition and audit committee expertise. This research was conducted in Indonesia by using 306 firm years’ observations. The result of this research showed a different result from previous researches. This research showed that the implementation of good corporate governance in the form of board director composition and audit committee expertise do not impact the practice of real activities manipulation. Or, in other words some of the good corporate governance tool could not mitigate the real activities manipulation in the company.

Do sin firms engage in real activities manipulation to meet earnings benchmarks?

2020 ◽  
Vol 28 (3) ◽  
pp. 535-551
Author(s):  
Suzanne M. Ogilby ◽  
Xinmei Xie ◽  
Yan Xiong ◽  
Jin Zhang
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Abnormal Returns ◽  
Reporting Quality ◽  
Production Costs ◽  
Financial Statement ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Earnings Benchmarks ◽  
Real Activities Manipulation

Purpose Recent literature suggests that sin firms (firms in tobacco, gambling and alcohol industries) have lower institutional ownership, fewer analysts following, higher abnormal returns and higher financial reporting quality. This study aims to investigate empirically how sin firms engage in real activities manipulation (RAM) to meet earnings benchmarks in comparison to non-sin firms. Design/methodology/approach The authors examine two types of RAM, namely, Cutting discretionary expenditures including research and development (R&D), SG&A and advertising to boost earnings. Extending deep discount or lenient credit terms to boost sales and/or overproducing to decrease COGS to increase gross profit. Consistent with Roychowdhury (2006), the authors use abnormal discretionary expenditures as the proxy for expenditure reduction manipulation and abnormal production costs as the proxy for COGS manipulation. Findings The results for the abnormal discretionary expense model suggest that sin firms do not engage in RAM of advertising, R&D, SG&A expense to just meet earnings benchmarks. The results for the production costs model suggest that sin firms do not engage in COGS manipulation to just meet earnings benchmarks. The results are robust after controlling accrual-based earnings management (AEM). Overall, in this setting, these results suggest that managers of sin firms engage less in RAM to meet earnings benchmarks. Originality/value The findings are of interest to investors, auditors, regulators and academics with respect to financial statement analysis and earnings quality.

scholarly journals Auditors’ view on acceptability of clients’ earnings management practices

2016 ◽  
Vol 13 (4) ◽  
pp. 535-541
Author(s):  
Farisha Hamid ◽  
Hafiza Aishah Hashim ◽  
Zalailah Salleh
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Likert Scale ◽  
Management Activity ◽  
General Manager ◽  
Discretionary Accrual ◽  
Real Activities Manipulation

The purpose of this paper is to assess the views of auditors on earnings management in Malaysia. This study uses a questionnaire designed by Merchant and Rockness (1994), which consists of thirteen (13) short scenarios. Each scenario describes a potentially questionable earnings management activity undertaken by the general manager. The respondents were asked to judge the acceptability of each of the scenarios using a five-point (5) Likert scale. Based on responses, this study finds that acceptability varies with the type of earnings management. The auditors believe that discretionary accrual manipulation is more unethical than real activities manipulation, while the consistency with MFRS and the direction of effect on earnings management do not seem to be an issue to the respondents regarding the acceptability of earnings management

scholarly journals Real activities manipulation and firm valuation

2017 ◽  
Author(s):  
Cristhian Mellado-Cid ◽  
Surendranath R. Jory ◽  
Thanh N. Ngo
Keyword(s):  
Firm Valuation ◽  
Real Activities Manipulation
Sign in / Sign up

Export Citation Format

Share Document