Qualified Audit Opinion, Accounting Earnings Management and Real Earnings Management: Evidence from Iran

2015 ◽  
Vol 5 (1) ◽  
pp. 46-57 ◽  
Author(s):  
Akhgar M Omid
Keyword(s):  
Earnings Management ◽  
Real Earnings Management ◽  
Accounting Earnings ◽  
Audit Opinion ◽  
Accounting Earnings Management ◽  
Qualified Audit Opinion

Economic Effects of Tightening Accounting Standards to Restrict Earnings Management

2005 ◽  
Vol 80 (4) ◽  
pp. 1101-1124 ◽  
Author(s):  
Ralf Ewert ◽  
Alfred Wagenhofer
Keyword(s):  
Earnings Management ◽  
Rational Expectations ◽  
Earnings Quality ◽  
Accounting Standards ◽  
Relevant Information ◽  
Economic Effects ◽  
Real Earnings Management ◽  
Accounting Earnings ◽  
Marginal Benefit ◽  
Accounting Earnings Management

This paper examines the usual claim that tighter accounting standards reduce earnings management and provide more relevant information to the capital market. We distinguish between accounting and real earnings management and assume that a standard setter can only influence accounting earnings management by the tightness of standards. In a rational expectations equilibrium model, we find that earnings quality increases with tighter standards, but we identify several consequences that may outweigh this benefit. First, managers increase costly real earnings management because the higher earnings quality increases the marginal benefit of real earnings management. Second, tighter standards can increase rather than decrease expected accounting and total earnings management. Third, the expected total costs of earnings management can also increase. We provide conditions for the occurrence of each of these effects.

Earnings management in non-public companies: the case of for-profit hospice organizations

2017 ◽  
Vol 29 (1) ◽  
pp. 1-19
Author(s):  
Kelly Noe ◽  
Dana A. Forgione ◽  
Pamela C. Smith ◽  
Hanni Liu
Keyword(s):  
Earnings Management ◽  
Financial Statements ◽  
Accounting Earnings ◽  
Public Companies ◽  
For Profit ◽  
Management Literature ◽  
Political Cost ◽  
Accounting Earnings Management ◽  
Public Scrutiny ◽  
Cost Factors

We examine earnings management in non-publicly listed companies, with a focus on for-profit (FP) hospice organizations, and extend the accounting earnings management literature to the hospice industry. FP hospice organizations file Medicare cost reports that include complete financial statements not otherwise publicly available. Managers of FP hospice organizations have incentives to manage earnings to increase performancebased bonuses, meet or beat bond covenant requirements, or avoid public scrutiny. We find total accruals are significantly positively associated with profitability, debt, and size factors. However, discretionary accruals are significantly negatively associated with debt and size, but not profitability. Thus, monitoring and political cost factors appear to effectively mitigate earnings management in this industry sector.

Auditors' Responses to Classification Shifting: Evidence from U.S. Firms

2021 ◽  
Author(s):  
Mai Dao ◽  
Hongkang Xu ◽  
Trung Pham
Keyword(s):  
Earnings Management ◽  
Audit Fees ◽  
Real Earnings Management ◽  
Audit Report ◽  
Audit Opinion ◽  
Income Statement ◽  
Financial Restatements ◽  
Classification Shifting ◽  
Financial Misstatements

This study examines how auditors react to clients' engagement in classification shifting which refers to the intentional misallocation of line items within the income statement. We find that classification shifting is positively associated with audit fees, audit report lags, the issuance of a modified audit opinion, and auditor resignations. Additional analyses show that auditors' responses to multiple-year classification shifting are similar to our main findings. We further find that classification shifting is associated with a higher likelihood of financial misstatements in the classification shifting year, and future announcements of financial restatements. We also find that the probability of future restatements is even higher when audit clients engage in both classification shifting and real earnings management. Overall, our results imply that auditors become more cautious in response to audit clients' classification shifting behavior.

Analysts’ reactions to firms’ real activities management

2019 ◽  
Vol 18 (4) ◽  
pp. 589-612
Author(s):  
Joonho Lee ◽  
Sung Gon Chung
Keyword(s):  
Earnings Management ◽  
Accounting Standards ◽  
Negative Association ◽  
Production Costs ◽  
Accounting Earnings ◽  
Content Type ◽  
Stock Recommendations ◽  
Future Performance ◽  
Accounting Earnings Management ◽  
Operating Activities

Purpose Firms’ real activities management (RAM) can have a more detrimental effect on firms’ future performance than accrual earnings management. This paper aims to examine whether analysts, who play an important role as information intermediaries, understand the negative effect of RAM on firms’ future performance and respond to it accordingly. Design/methodology/approach The authors investigate whether analysts lower their earnings forecasts and stock recommendations of the firms with RAM. The authors measure RAM by examining firms’ abnormal decreases in discretionary expenses, abnormal increases in production and abnormal decreases in cash flow from operations following prior literature. Findings The authors find that after controlling for earnings surprises and other important firm characteristics, analysts lower their forecasts of future annual earnings and stock recommendations of the firms that show signs of RAM. Research limitations/implications First, as in other RAM studies, the results in this study are subject to measurement errors inherent in the estimation of RAM (i.e. abnormal production costs, abnormal CFO and abnormal discretionary expenditures). Second, we include only firm-year observations that barely make positive income in our samples following the previous study. This sample selection criterion helps increase the power of the test by examining the “suspect firms group,” which are more likely to engage in earnings management. However, one can challenge that our findings on the association between RAM and analysts’ reactions could be only case-specific and cannot be generalized. Practical implications This study contributes to the literature on earnings management and especially on RAM. Specifically, none of the previous studies clearly examines whether analysts understand the negative impact of RAM on firms’ future performance and respond accordingly, although there are studies showing the negative association between RAM and firms’ future operating performance and studies showing the negative association between analysts following and RAM. Thus, filling the gap, this study provides a specific reason for the negative association between the analyst following and real earnings management presented in previous studies. Social implications The findings will be of interest to regulators, who are concerned about the potential negative consequences in which tighter accounting standards can result. For example, Ewert and Wagenhofer (2005) theoretically demonstrate that tighter accounting standards can prompt more RAM instead of accounting earnings management. The study provides important evidence supporting that such suboptimal operating activities are closely watched by analysts and are potentially penalized by the market. If the market is able to detect RAM and allocate fewer resources to the firms that engage in it, then the concerns associated with the substitution effect between accrual-based earnings management and RAM can be diminished. Originality/value Prior research suggests that tighter accounting regulations (e.g. the Sarbanes-Oxley Act) prompt more RAM than accounting earnings management. The study provides evidence supporting that such suboptimal operating activities are closely watched by analysts and are potentially penalized by the market.

scholarly journals Earnings Management and Audit Opinion

2016 ◽  
Vol 8 (4) ◽  
pp. 113
Author(s):  
Elaheh Moazedi ◽  
Ehsan Khansalar
Keyword(s):  
Earnings Management ◽  
Income Smoothing ◽  
Real Earnings Management ◽  
Control Variables ◽  
Main Hypothesis ◽  
Audit Opinion ◽  
Discretionary Accrual ◽  
Time Period ◽  
Logistic Regression Method ◽  
The Relationship

The subject of the present research is the study of the relationship between earnings management (accrual-based and real) and auditor’s opinion. Alongside putting the control variables into consideration, this this paper studies the relationship between earnings management (accrual-based and real) and auditors’ opinion. The purpose of this research is to examine the effect of income smoothing and manipulation on the opinion of independent auditors. This research includes two independent variables i.e. earnings management (based on discretionary accruals) and real earnings management, one dependent variable i.e. auditor’s opinion, along with control variables. In the first main hypothesis the relation between real earnings management and auditor’s opinion is examined; and the second hypothesis involves the association between discretionary accrual-based earnings management and auditor’s opinion. In this research some 117 firms in the time period 2008-2013 are empirically investigated and studied using logistic regression method. In conclusion, the second and third hypotheses are rejected; however examination of the first and fourth hypotheses confirms their significant association with auditor’s opinion.

scholarly journals COMPARISON OF THE TERMS CREATIVE ACCOUNTING, EARNINGS MANAGEMENT AND FRAUDULENT ACCOUNTING THROUGH BIBLIOGRAPHIC ANALYSIS

2021 ◽  
Vol 15 (2) ◽  
pp. 27-37
Author(s):  
Roman Hlawiczka ◽  
Roman Blazek ◽  
Gabriel Santoro ◽  
Gianluca Zanellato
Keyword(s):  
Earnings Management ◽  
Revenue Management ◽  
Value Added ◽  
Accounting Earnings ◽  
Interesting Insight ◽  
Creative Accounting ◽  
Keywords And Phrases ◽  
World Class ◽  
Accounting Earnings Management ◽  
Mind Maps

Research background: The article focuses on the issues of creative accounting, earnings management, and fraudulent accounting, which are global phenomena. These concepts are well known globally, as they are dealt with by many world-renowned authors. In this study, we applied bibliometric analysis to these concepts to reveal their interconnectedness. The research was conducted on a sample of more than 19,000 articles. Purpose of the article: The main goal of the study is to use the VosViewer design and visualisation program to capture and record the most common terms associated with the terms, ‘creative accounting’, ‘revenue management’, and ‘fraudulent accounting’, and to show a biometric network of the most commonly used terms. Methods: To capture and illustrate important words associated with the above terms, the VosViewer program was used, which drew mind maps that represented the words and expressions that were closest to the topic. Scientific articles from the Web of Science database, which contains many world-class articles related to the topic, were used as input data. Findings & Value added: The results of the study provided an interesting insight into the keywords associated with the issues of creative accounting, revenue management, and fraudulent accounting. The results show that the keywords and phrases are related, as several of them are repeated in each of the terms mentioned. This means that, although these terms are different in nature, they are nevertheless connected by many words and phrases. However, it remains necessary to observe that each of the given terms appears on a different colour of fraud (white, grey, or black fraud).

scholarly journals Survey Some of the Factors Influencing Ethical Judgments of the Earnings Management

2012 ◽  
Vol 2 (1) ◽  
pp. 203
Author(s):  
Mohammad Hossein Vadiei Nowghabi ◽  
Saleh Anbarani
Keyword(s):  
Earnings Management ◽  
Ethical Perception ◽  
Management Scenarios ◽  
Accounting Earnings ◽  
Accounting Management ◽  
Factors Influencing ◽  
Significant Difference ◽  
Accounting Numbers ◽  
Accounting Earnings Management ◽  
Senior Students

Earnings management is using judgment in reporting financial results and in structuring transactions to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers (Kaplan, 2001).This study investigates the ethical perception of students concerning different earnings management scenarios. A questionnaire is used to measure the ethical perception of  the respondents concerning 15 earnings management scenarios. The questionnaire is based on the questionnaire of Merchant (1994) and Fischer and Rosenzweig (1995). Sample including Fields of accounting and non- accounting (management and economics) all the senior students admission to universities public of Iran. The results of the 250 questionnaires indicate that: (1) There is a significant difference between knowledge ethical operating earnings management and accounting earnings management. (2) There is a significant difference between knowledge ethical earnings management that decrease earnings and earnings management that increase earnings. (3) There is a significant difference between knowledge ethical earnings management that affect earnings on a quarterly basis than earnings management that affect earnings on a yearly basis.

Sign in / Sign up

Export Citation Format

Share Document