Issuance Of Subsidiary Stock As An Earnings Management Strategy

Arthur Levitt, chairman of the Securities and Exchange Commission, expressed concern that the pervasiveness of earnings management in American corporate financial statements threatens the integrity of financial reporting.  Levitt referred to the “cookie jar” phenomenon wherein U.S. firms have earmarked opportunities to “find gains” when earnings are less than anticipated.  The academic research literature includes a large number of studies on earnings management strategies.  One relatively unexplored strategy is the use of stock issuances by subsidiaries to generate gains under the provisions of SEC Staff Accounting Bulletin No. 51.  Based upon a sample of 125 observations of this accounting choice over the period 1985 through 1997, our study provides compelling evidence that recognition of gains on the issuance of subsidiary stock coincides with periods when earnings fail to meet expectations (as measured by analysts’ forecasts), and that the recognition of these gains in the income statement is effective in achieving earnings expectations. Further, the amounts of these gains are large relative to pre-gain net income

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Earnings Management: The Role Of Accounting Professionals

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v1i3.3899 ◽

2011 ◽

Vol 1 (3) ◽

Cited By ~ 1

Author(s):

Paul J. Carruth

Keyword(s):

Earnings Management ◽

Financial Markets ◽

Financial Reporting ◽

Vital Role ◽

Securities And Exchange Commission ◽

Accounting Fraud ◽

Earnings Expectations ◽

Corporate Executives ◽

Accounting Professionals

In todays financial markets there is a great deal of pressure for corporations to meet investors earnings expectations. Failure to do so may result in the loss of millions of dollars in stock capitalization. As a result, an increasing number of corporate executives have succumbed to the temptation to manage their earnings in order to achieve targeted profits. The number of companies under investigation by the Securities and Exchange Commission (SEC) for possible accounting fraud related to earnings management has increased significantly in recent years. This article identifies and discusses four common areas of potential financial reporting abuse: restructuring costs, miscellaneous reserve accounts, materiality, and manipulation of revenue recognition. In addition, this paper discusses the vital role of accounting professionals as gatekeepers responsible for helping to maintain the viability of our financial markets.

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Applicative aspects of bank′s financial reporting: Analytical framework of a single banking report

Privredna izgradnja ◽

10.2298/priz0302073o ◽

2003 ◽

Vol 46 (1-2) ◽

pp. 73-110

Author(s):

Sinisa Ostojic

Keyword(s):

Financial Reporting ◽

Balance Sheet ◽

Financial Statements ◽

Analytical Framework ◽

Bank Performance ◽

Net Income ◽

Small Community ◽

Bank Profitability ◽

Banking Organization ◽

Income Statement

This paper introduces financial statements of commercial banks and presents a procedure for analyzing bank profitability and risks using historical data. The procedure involves decomposing aggregate profit ratios into their components to help identify key factors that influence performance. This paper presents a procedure for analyzing bank performance using periodic balance sheet and income statement data. It describes the components of financial statements, provides a framework for comparing the trade-off between bank profitability and risk, and compares the performance of a small community bank with that of a large super regional banking organization. It uses data presented in a banks Uniform Bank Performance Report (UBPR) to demonstrate the analysis. Many banks experience dramatic changes in profits from one period to the next or relative to what stock analysts expect. In many cases, profits are lower because of unanticipated loan losses. In other cases, profits are higher because of extraordinary growth in noninterest income. A key point is that it is becoming increasingly difficult to evaluate performance by looking at reported balance sheet and income statement data. Net income can be managed, or manipulated, by bank managers to disguise potential problems. In this paper I examine how banks, the most important of all the financial intermediaries, operate to earn the highest profits possible: how and why they make loans, how they acquire funds and manage their assets and liabilities (debts), and how they earn income.

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Does the IFRS improve earnings quality? A comparison of Turkish GAAP and IFRS

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-10-2019-0206 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Aydın Karapınar ◽

Figen Zaif

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Quantitative Research ◽

Earnings Quality ◽

Financial Statements ◽

Discretionary Accruals ◽

Net Income ◽

Data Set ◽

Content Type ◽

Significant Difference

Purpose The purpose of this study is to reveal the effect on earnings quality of switching to International Financial Reporting Standards (IFRS) from Turkish generally accepted accounting principles (GAAP) by comparing two sets of financial statements based on Turkish GAAP and IFRS. Design/methodology/approach This study is based on mathematical modeling. The variables (total assets, net income, total accruals, cash receivables, return on assets and size) in the models are core to the quantitative research that examines the relationship between them. In this study, the total accruals are computed based on the indirect approach, and the prediction error of the model represents discretionary accruals that reflect earnings management. The data set includes financial data prepared under IFRS and Turkish GAAP. The univariate and multivariate analyses are conducted by SPSS. Findings The results of this study indicate that IFRS does not cause any significant differences in total assets, but the net income under IFRS is larger compared to that under the Turkish GAAP. It is also found that while there is no significant difference in total accruals, there is a difference in discretionary accruals. In other words, Turkish firms use income-reducing discretionary accruals when adopting IFRS. Originality/value This study provides more insights into the effect of IFRS on earnings quality. It also provides evidence of the effect of accounting culture on IFRS adoption. As a code-law country in Turkey, publicly traded firms have to prepare financial statements based on both Turkish GAAP, which is rule-based and restricts management decisions with strict rules, and the principle-based IFRS which leaves more room to manipulate. To the authors’ knowledge, this is the first study that reveals the effect of accounting standards on earnings management by comparing two sets of financials of the same period prepared under different standards.

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Assurance on XBRL for Financial Reporting

Accounting Horizons ◽

10.2308/acch.2008.22.3.353 ◽

2008 ◽

Vol 22 (3) ◽

pp. 353-368 ◽

Cited By ~ 74

Author(s):

R. David Plumlee ◽

Marlene A. Plumlee

Keyword(s):

Financial Reporting ◽

Academic Research ◽

Financial Statements ◽

Securities And Exchange Commission ◽

Financial Information ◽

The Public ◽

Business Reporting ◽

Paper Version ◽

Public Company ◽

Reporting Environment

SYNOPSIS: Since 2004, the Securities and Exchange Commission (SEC) has taken steps toward requiring eXtensible Business Reporting Language (XBRL) to be used in its filings, including a voluntary filing program. “Tagging” financial information using XBRL creates documents that are computer readable and searchable. Once XBRL is required, investors are likely to demand assurance on the tagging process. The Public Company Accounting Oversight Board (PCAOB) has issued guidance on attest engagements regarding XBRL financial information furnished under the SEC’s current voluntary filer program, which relies on the auditor “agreeing” a paper version of the XBRL-related documents to the information in the official EDGAR filing. This approach may be adequate for the current paper-oriented reporting paradigm. However, once filing in XBRL becomes required, the power of XBRL to allow individual financial datum to be extracted from the SEC’s financial database will be realized. This “data-centric” idea is a crucial extension of the traditional reporting paradigm that will alter the way financial and nonfinancial data can be used. The current audit focus on reconciling only the XBRL output with the paper submissions does not address this paradigm shift. In this commentary, we discuss the SEC’s efforts to incorporate XBRL into its filing process and provide a brief overview of the technical aspects of XBRL. The commentary’s principal focus is on several important questions that assurance guidance must address in a data-centric reporting environment, such as, what constitutes an error, or what does materiality mean when individual pieces of financial data will be used outside the context of the financial statements? It also describes some XBRL-related areas where academic research can help guide XBRL-document assurance efforts.

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Does Recent Academic Research Support Changes to Audit Reporting Standards?

Accounting Horizons ◽

10.2308/acch-51397 ◽

2016 ◽

Vol 30 (2) ◽

pp. 255-275 ◽

Cited By ~ 34

Author(s):

Jean Bédard ◽

Paul Coram ◽

Reza Espahbodi ◽

Theodore J. Mock

Keyword(s):

Financial Reporting ◽

Academic Research ◽

Financial Statements ◽

Future Research ◽

Research Support ◽

The Public ◽

Market Participants ◽

Information Gap ◽

Public Company ◽

Reporting Process

SYNOPSIS The Public Company Accounting Oversight Board (PCAOB), the International Auditing and Assurance Standards Board (IAASB), and the U.K. Financial Reporting Council (FRC) have proposed or approved standards that significantly change the independent auditor's report. These initiatives require the auditor to make additional disclosures intended to close the information gap; that is, the gap between the information users desire and the information available through the audited financial statements, other corporate disclosures, and the auditor's report. They are also intended to improve the relevancy of the auditor's report. We augment prior academic research by providing standard setters with an updated synthesis of relevant research. More importantly, we provide an assessment of whether the changes are likely to close the information gap, which is important to financial market participants and other stakeholders in the audit reporting process. Also, we identify areas where there seems to be a lack of sufficient research. These results are of interest to all stakeholders in the audit reporting process, as the changes to the auditor's report are fundamental. Additionally, our summaries of research on the auditor's report highlight where there is limited research or inconsistent results, which will help academics identify important opportunities for future research.

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Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

Revista Contabilidade & Finanças ◽

10.1590/1808-057x201702750 ◽

2017 ◽

Vol 28 (73) ◽

pp. 113-131

Author(s):

Roberto Black ◽

Sílvio Hiroshi Nakao

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Value Relevance ◽

Earnings Quality ◽

Economic Incentives ◽

Net Income ◽

Accounting Earnings ◽

Ifrs Adoption ◽

Before And After

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

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EARNINGS MANAGEMENT AS A MANIPULATIVE FORM OF FINANCIAL REPORTING

Knowledge International Journal ◽

10.35120/kij34051323m ◽

2019 ◽

Vol 34 (5) ◽

pp. 1323-1328

Author(s):

Marija Milojičić ◽

Snežana Knežević ◽

Aleksandar Grgur

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Financial Analysis ◽

Balance Sheet ◽

Financial Statements ◽

Legal Framework ◽

Business Decisions ◽

Accounting Principles ◽

The Republic

The financial statements, as the end product of the accounting information system, are a structural account of the financial position and financial success of an entity's business over a period. Earnings or net profit indicates an important position in the financial statements and is considered as a measure of a company’s success. Earnings management comes from the accounting skills that executives and business owners use when making business decisions. The Generally Accepted Accounting Principles set out in International Accounting Standards (hereinafter IAS) and International Financial Reporting Standards (hereinafter referred to as IFRS) generally give the owner or manager the choice between several accounting methods within the various stages of the accounting process. One of these methods is creative accounting, which is often correlated with the manipulation of financial statements. Creativity in accounting is known to be legal and to stay within the legal framework, but it is often the case that, with its creativity, it is beyond its boundaries. The way managers exercise this discretion is very important to the quality and objectivity of financial reporting.The tendency of the owners, and then the managers, to show the performance of the company better than they really are, is certainly not new. The reason that in the world from the beginning of the 2000s to the present day, both by the scientific and professional public and by the regulatory bodies in charge of financial reporting, particular attention is paid to this problem are the major political and economic scandals caused by the inaccurate presentation of financial statements. It is considered that manipulative accounting practices are applied in the preparation of financial statements when the application of accounting principles is made with the intention of achieving the desired objective, such as, for example, generating greater profit regardless of whether the procedures selected are in accordance with international and local prescribed rules.The prevalence of manipulation of financial statements depends on the situation in the environment, the quality of the normative basis of financial reporting, the quality of management and the ability of accountants to comply with professional and ethical standards. The environment implies the general economic situation, the existence or absence of appropriate legislation, including its implementation, as well as the relation to tax liabilities.The result of the original empirical research is presented in this paper. The research was conducted in the form of a case study of a domestic business entity (the Republic of Serbia), whose main activity is trade in sports and fashion products. The financial analysis was performed using the Beneish model, which was derived from the official financial statements of the companies, collected from publicly available databases (Balance Sheet and Income Statement 2016-2018) as the basic information base in order to discover the degree of possible manipulation of their own earning capacity. This model has become particularly popular since the Beneish M-scoring model revealed the manipulation of the financial results of the US company Enron, which went bankrupt in 2001.

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KOMPARASI KINERJA KEUANGAN PERBANKAN SYARIAH BERBASIS PENDEKATAN LABA RUGI DAN NILAI TAMBAH

IKONOMIKA ◽

10.24042/febi.v1i2.150 ◽

2017 ◽

Vol 1 (2) ◽

pp. 157

Author(s):

Yulianti Saifudin ◽

Yayan Pribadi

Keyword(s):

Value Added ◽

Financial Statements ◽

Financial Ratios ◽

Analysis Tool ◽

Net Income ◽

Financial Ratio ◽

Islamic Bank ◽

Income Statement ◽

Net Profit ◽

Productive Assets

Abstract-The objectives of this study are to analyze the differences in financial performance of Islamic bank by using the income statement approach and value added approach on financial ratios. Financial ratios used consisted of ROA, ROE, the ratio between the total net income by total earning assets, NPM, and BOPO. The Object used in this study are listed Islamic Bank at Bank Indonesia. Population of this research are the financial statements of Islamic Banks, while the sample used was the financial statements for 2010-2014 for each income statement and the value added statement. Analysis tool used to prove the hypothesis of this study is an independent sample t-test.The results showed that the average financial ratio (ROA, ROE, net profit ratio of productive assets, and NPM) there are significant differences between the Income Statement and Value Added Statement, while the BOPO ratio between the Income Statement and the Value Added Statement there is not a difference.

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Pelatihan Pembuatan Laporan Keuangan Bagi UMKM Sebagai Informasi Untuk Pengambilan Keputusan

Jurnal Pemberdayaan Masyarakat Madani (JPMM) ◽

10.21009/jpmm.002.1.05 ◽

2018 ◽

Vol 2 (1) ◽

pp. 63-82

Author(s):

Sila Ninin Wisnantiasri ◽

Irma Paramita Sofia ◽

Fitriyah Nurhidayah ◽

Karsam Sunaryo

Keyword(s):

Financial Reporting ◽

Business Performance ◽

Financial Analysis ◽

Financial Statements ◽

Financial Statement ◽

Educational Game ◽

Financial Report ◽

Study Approach ◽

Income Statement ◽

The Impact

The purpose of this dedication for Pisangan Village Community through financial statement training for small business in collaboration with partners of Citra Kencana Community is to improve the understanding of partners in making financial report especially income statement. The problem facing partners is not mastering how to create a correct financial statement. The financial statements can be used by partners as a benchmark of business performance and business financial analysis tools. Therefore, the methods used in this activity are: (1) convey material about basic concepts of accounting, (2) convey material about components of income statement, (3) provide business simulation and recording financial statements through educational game business accounting (4) the practice of preparing the business income statement and analysis by the entrepreneur, (5) advising / consulting the profit-loss statement. Besides, regression test is done through event study approach to know the impact of training for knowledge of financial report objectives and understanding of financial reporting from the community after getting the training. The result of this activity is increasing both knowledge and understanding of society in making financial report. This is shown by the direction of a positive and significant relationship between training with community knowledge and understanding. Keywords: Financial statement, Small entrepreneurship, Business analysis

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Ruckman, Inc.: Converting from U.S. GAAP to IFRS

Issues in Accounting Education ◽

10.2308/iace-10020 ◽

2011 ◽

Vol 26 (2) ◽

pp. 341-360 ◽

Cited By ~ 7

Author(s):

Rebecca Fay ◽

John A Brozovsky ◽

Patricia G Lobingier

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Financial Statements ◽

The United States ◽

Securities And Exchange Commission ◽

High Demand ◽

Financial Reporting Standards ◽

Accounting Courses ◽

Cpa Exam ◽

Two Phases

ABSTRACT This case is designed as a comprehensive review of significant differences between accounting principles generally accepted in the United States of America (U.S. GAAP) and International Financial Reporting Standards (IFRS) for specific topics covered during most Intermediate Accounting courses. The task requires you to analyze and evaluate a company's significant accounting policies for compliance with IFRS as you plan and conduct the conversion of a firm's financial statements from U.S. GAAP to IFRS. The skills developed throughout this case are currently in high demand as IFRS is quickly becoming the global norm in accounting standards and many multinational companies based in the U.S. are already affected by these standards. The Securities and Exchange Commission (SEC) has developed a roadmap that may require U.S. companies to begin adopting IFRS in 2015. You will be tested on your knowledge of IFRS on the CPA exam. The case is presented in two phases, allowing you to experience the conversion process from planning to execution.

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