scholarly journals External auditor’s analytical procedures and their impact on discovering material misstatements

2020 ◽  
Vol 71 (3) ◽  
pp. 271-300
Author(s):  
Abdul Razzak Alshehadeh ◽  
Abdallah Atieh
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Multivariate Linear Regression Model ◽  
Independent Variables ◽  
Study Population ◽  
External Auditor ◽  
Analytical Procedures ◽  
The Impact

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 effect of outside blockholders on earnings management around seasoned equity offerings in French listed companies on the SBF120

2019 ◽  
Vol 17 (3) ◽  
pp. 449-467
Author(s):  
Abir Jerbi Maatougui ◽  
Khamoussi Halioui
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Seasoned Equity Offerings ◽  
Empirical Literature ◽  
Individual Investors ◽  
Equity Offerings ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to test the effect of the presence of outside blockholders on earnings management around seasoned equity offerings (SEOs). Design/methodology/approach Given that SEO can be one of motivations for earnings management, the authors examined the role of outside blockholders in monitoring the opportunistic behavior of managers around 50 SEOs realized by 45 French companies during the 2005-2009 period based on panel data model. Findings The authors found that issuing firms are used for upward earnings management during the pre-offering period. Indeed, the discretionary accruals know a continuous evolution during the three years preceding SEO and peaked in the year prior to the SEO. This result led us to examine the role played by the outside blockholders on earnings management. The results provided empirical evidence that the presence of outside blockholders in SEO firms is able to restrain earnings management practices. Research limitations/implications This study allows to inform investors that French issuing firms are less overvalued in the presence of outside blockholders than in their absence. As a result, investors have an interest in participating in the SEO of firms that hold outside blockholders in their capital structure. Again, based on this study, users of financial statements can trust the reliability of the financial statements published by companies with outside blockholders because of the careful control exercised by these shareholders in the process of producing financial information. However, similar to how any research may suffer from some limitations, this work has two major limitations. Firstly, the authors examined the impact of outside blockholders on earnings management without distinguishing between the different types of blockholders (such as individual investors, pension funds, mutual funds, banks and trusts). Secondly, they have estimated the discretionary accruals by referring to a single model (Kothari et al., 2007). However, the use of two or more models for estimating accruals will lead to more robust results. Originality/value The empirical literature emphasizes the monitoring role played by these shareholders on earnings management. However, it does not distinguish between the circumstances when the monitors either lose or win from exaggerations. This research completes this lack by studying the impact of outside blockholders on earnings management around SEOs.

scholarly journals The credibility of earnings announced by new stock companies: accrual and real earnings management

Equilibrium ◽  
2021 ◽  
Vol 16 (3) ◽  
pp. 661-677
Author(s):  
Tomasz Sosnowski
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Financial Reporting ◽  
Value Added ◽  
Financial Statements ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Production Costs ◽  
Real Earnings Management ◽  
The Impact

Research background: An initial public offering (IPO) creates an excellent opportunity to research the impact of changes in the institutional environment of companies on the trustworthiness of the information disclosed in financial statements. Purpose of the article: The main aim of the study is to analyze the use of accrual and real earnings management to inflate earnings, revenue, or total assets around the going public event. Therefore, this paper contributes to the stream of study on the quality of financial reporting of new stock companies. Methods: Two main approaches reflect the use of various types of earnings management activities, i.e., discretionary accruals and real earnings management. In both cases, it was necessary to use proper OLS method estimated models to identify the normal level of categories that affect the results reported in financial statements. Findings & value added: Based on a sample of 183 IPOs from the Warsaw Stock Exchange between 2005 and 2015, generally, managers of newly-listed companies actively use discretionary accruals, reduce production costs and certain discretionary expenses, and abnormal cash flows from operations ? i.e., all proxies of earnings management used in the paper ? in the periods around the IPO. In the period prior to the IPO, managers more often introduce techniques typical of the real sphere of the company's operations, in particular, the deliberate modeling of certain discretionary costs. In turn, the use of discretionary accruals dominates in the year after the IPO.

scholarly journals The impact of creative accounting methods on financial reports and statements in commercial banks listed on Amman stock exchange (field study)

2021 ◽  
Vol 10 (2) ◽  
pp. 449-457
Author(s):  
Abdelwahab Mahmoud Al-Rawashdeh
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Assessment Tool ◽  
Stock Exchange ◽  
Financial Statements ◽  
Professional Organization ◽  
Financial Reports ◽  
Creative Accounting ◽  
Amman Stock Exchange ◽  
The Impact

The aim of this study is to identify the impact of creative accounting methods on financial reports and statements in commercial banks listed on Amman Stock Exchange. Thus, in order to achieve this goal, the study utilized the descriptive analytical approach for its suitability to the nature of the study, also, the questionnaire was used as an assessment tool for this study. Meanwhile, among the most important findings of the study is that earnings management operations include many means and methods aimed at achieving specific purposes serving the management. Additionally, that commercial banks have practiced earnings management and creative accounting operations to a large extent during the financial years covered by the study period. And that the banking management is not aware of the impacts resulting from the operations of practicing fraudulent accounting and earnings management on the financial reports and statements, which greatly affects the reliability of the financial statements, makes them misleading and loses their quality, objectivity and credibility, therefore, affects the decisions of those statements’ users. The study has recommended the need to activate the governmental supervisory role as well as the audit committees in banks to limit the banks' practice of earnings management and creative accounting for the purpose of achieving the best degree of accounting information's quality and to provide it with each of trust and suitability, as well as the need to increase the effectiveness of the professional organization of accounting and auditing profession in Jordan. Also, to take the necessary measures to develop and enhance the competencies of its members, especially those who undertake auditing operations of banks' accounts to reveal earnings management and creative accounting operations and then working on reduce them. Besides, the necessity to expedite the activation of the governance rules' implementation, provided that it includes imposing penalties on the management of banks that practice creative accounting operations for the purpose of giving the published financial statements for these banks in the financial market each of confidence and objectivity.

scholarly journals Assessing the Impact of Bank Concentration and Liquidity of Refah Bank Branches on Profitability during the Period1383-190

2014 ◽  
Vol 4 (1) ◽  
pp. 248
Author(s):  
Hossin Ostadi ◽  
Nastran Monsef
Keyword(s):  
Commercial Banks ◽  
Bank Capital ◽  
Factors Affecting ◽  
Bank Branches ◽  
Independent Variables ◽  
Bank Deposits ◽  
The Impact ◽  
Bank Concentration ◽  
Research Period

Profitability is an important factor to show this articledoeswhat is the role of the intermediary bank to collect your savings and allocation of loans.  Given the importance of profitability indicators in this study, the factors affecting the profitability of commercial banks in Iranare analyzedwith emphasis on the degree of centralization and bank deposits. Dependent variable is indicators of profitability (ROE, ROA) and bank deposits, bank size, bank capital, focus on liquidity and banking requirements are independent variables. Correlation analysis and OLS regression are used and the research period is 1381 to 1390 that the country's territory where bank branches.Our results indicate that the effect of bank size on profitability is positive and the increase in bank size on profitability is increased. Impact on the profitability of bank deposits is positive, ie increasing the profitability of bank deposits increased. Finally, the impact of bank concentration on profitability is positive. Increasing the bank's focus profitability increases. Moreover, the results adversely affect the liquidity of the index is profit. 

scholarly journals Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 1-14
Author(s):  
Temitope Olamide Fagbemi ◽  
Olubunmi Florence Osemene ◽  
Oyinlade Agbaje
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Discretionary Accruals ◽  
P Value ◽  
Secondary Source ◽  
Firm Characteristics ◽  
Ex Post ◽  
Management Entrenchment ◽  
The Impact

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

Accounting Discretion, Horizon Problem, and CEO Retirement Benefits

2009 ◽  
Vol 84 (5) ◽  
pp. 1553-1573 ◽  
Author(s):  
Paul Kalyta
Keyword(s):  
Firm Performance ◽  
Earnings Management ◽  
Discretionary Accruals ◽  
Pension Plans ◽  
Primary Data ◽  
Retirement Benefits ◽  
Horizon Problem ◽  
Accounting Choices ◽  
Fortune 1000 ◽  
The Impact

ABSTRACT: Empirical research on the impact of managerial retirement on discretionary accounting choices is inconclusive, with most studies finding no evidence of earnings management in the pre-retirement period. I argue that income-increasing accounting choices in final pre-retirement years are particularly appealing to managers whose pension depends on firm performance in these years. Using primary data on retired CEOs of Fortune 1000 firms, I investigate the impact of CEO pension plans on discretionary accruals. Consistent with the prediction, I find evidence of income-increasing earnings management in the pre-retirement period only when CEO pension is based on firm performance. I also report evidence of negative abnormal market reaction to CEO retirement in firms with performance-contingent CEO pensions.

scholarly journals ANALYSIS OF THE INFLUENCE OF FINANCING ON THE VALUE OF SHARIA BANKS WITH PROFITABILITY AS INTERVENING VARIABLES

2021 ◽  
Vol 8 (1) ◽  
pp. 15-30
Author(s):  
Imam Azizuddin
Keyword(s):  
Data Analysis ◽  
Path Analysis ◽  
Commercial Banks ◽  
Financial Statements ◽  
The Impact ◽  
Intervening Variables

This study aims to analyze the influence of NUC and NCC financing on Sharia commercial banks' value using variable profitability as variable intervening. The data used in exploring the impact of this financing is obtained from the financial statements issued by OJK with data from 2016-2019. The data analysis used in this study uses path analysis. This study shows that nuc has a significant effect on profitability but has no significant impact on the value of sharia banks. In contrast to the NCC results that have absolutely no significant impact on Sharia banks' profitability and value. This study also provides information that nuc has no effect on the importance of sharia banks with profitability as variable intervening, in contrast to NCC, which affects the value of sharia banks with profitability as variable intervening.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

ANALYTICAL PROCEDURES DESIGN FOR ASSESSING PROFITABILITY DURING THE AUDITING OF HOUSING MANAGEMENT COMPANIES’ FINANCIAL STATEMENTS

2017 ◽  
Author(s):  
Liudmyla Sokolenko ◽  
Keyword(s):  
Business Processes ◽  
Financial Statements ◽  
Continuous Operation ◽  
Debt Management ◽  
Management Company ◽  
Use Of Resources ◽  
Time Period ◽  
Analytical Procedures ◽  
The Impact

The paper studies approaches to the analytical procedures design for assessing profitability in auditing of housing and communal services management companies’ financial statements in order to increase the validity of the auditor's conclusion. The purpose of the article is to prove the usefulness of using analytical procedures for assessing profitability of management company’s financial statements during its auditing, formulating their tasks and directions of information and documentary support. It has been established that the use of economic and mathematical modeling and the calculation of the panel of profitability indicators as analytical procedures essentially make it possible to assess the management company activity efficiency, as well as use of resources, and the effectiveness of debt management. In article the auditor’s tasks of analytical procedures for assessing the profitability of housing and communal services management company were specified: 1) assessment of the management company’s profitability trend during the last reporting periods for establishing general trends in its performance and future activities development; 2) identification of factors that determine management company’s profitability changes over the analyzed time period, that will make it possible to record significant ones and describe potential threats to profitability; 3) determination of reserves for increasing profitability for specific business processes or types of activities; 4) establishing the impact of changes in profitability on the management company’s ability to ensure the continuous operation. A list of profitability indicators performance has been formed. They should be calculated in the path of analytical procedures. Also it is recommended to draw up a working document "Analytical procedures for assessing the profitability of a management company". Basing on the content of profitability indicators and the possibilities of their calculation in the auditor's analytical procedures, auditor’s considerations have been formulated. They should guide the auditor in interpreting the calculated indicators.

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