The Likelihood of Forced Financial Restatement: The Case of Malaysia

2020 ◽  
Vol 11 (1) ◽  
pp. 144-144
Author(s):  
Intan Waheedah Othman ◽  
Richard Slack ◽  
Rebecca Stratling
Keyword(s):  
Decision Making ◽  
Earnings Management ◽  
Financial Reporting ◽  
Financial Statements ◽  
Developed Countries ◽  
Warning Signals ◽  
Foreign Investments ◽  
Financial Restatement ◽  
Emerging Country

Forced restatement is the corrections made to published financial statements as prompted by the auditors or regulators due to non-compliance with the Generally Accepted Accounting Practices (GAAP) (Palmrose and Scholz, 2004). Forced restatements that are due to aggressive financial irregularities, lead to the impairment of investors' confidence on the quality of financial reporting, increase investors' concerns on managerial opportunistic decision-making, and cause substantial losses to shareholders. Forced restatement creates great concern, not only in developed countries, but also in developing countries, thus threatening local and foreign investments in these markets. The effort to determine early warning signals of firms that warrant investigation, specifically in the emerging country of Malaysia remain significant. The review from this study would be beneficial to the auditors and regulators to intervene earlier in terms of formulating plans and strategies to minimize aggressive managerial behaviour, and investors, customers, and suppliers to identify and avoid firms at risk of requiring a forced restatement. Keywords: Forced restatement, earnings management, corporate governance, Malaysia.

Timeliness of Tunisian Audit Reports: An Empirical Investigation based on Ownership and Partnership Visions

2015 ◽  
Vol 5 (3) ◽  
Author(s):  
Mondher Fakhfakh
Keyword(s):  
Empirical Evidence ◽  
Financial Reporting ◽  
Empirical Investigation ◽  
Financial Statements ◽  
Qualitative Feature ◽  
Transmission Delays ◽  
Emerging Country ◽  
Audit Reports ◽  
Audit Information

Timeliness of audit reports is a qualitative feature that enhances the usefulness of audited financial statements. As an emerging country, Tunisia has modernized its accounting legislation to enhance the quality of financial reporting. This legislation encourages independent auditors to optimize the transmission delays of audit reports. The authorities assume that the satisfaction of stakeholders is secured by regulating disclosure of audit reports. Our research analyses the date of issue of Tunisian audit reports and timeliness of audit information for shareholders and all users of financial statements (stakeholders). This paper provides new empirical evidence about the timeliness of audit reports in Tunisia. It holds two dates that influence the needs of users of financial statements: the date of signature of the auditors and the date of publication of the audit reports in the financial bulletin. The same article discusses the variability of the timeliness of audit reports and the factors that explain the delay information.

scholarly journals EARNINGS MANAGEMENT AS A MANIPULATIVE FORM OF FINANCIAL REPORTING

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.

scholarly journals Methodological Analysis of Accounting Quality : Empirical Approach to DeAngelo’s Model and the Modified Jones Model

2021 ◽  
Vol 66 (2) ◽  
pp. 195-210
Author(s):  
Ervin Denich
Keyword(s):  
Decision Making ◽  
Earnings Management ◽  
Earnings Quality ◽  
Financial Statements ◽  
Empirical Approach ◽  
Accounting Quality ◽  
Manufacturing Companies ◽  
Jones Model ◽  
A Company

The aim of this study is twofold: the first goal is to systemise and summarise the models designed to measure the quality of financial statements, as these reports can form the basis of decision-making for the users. The second goal is to analyse the financial statements prepared by manufacturing companies acting in Baranya Country, from a quality perspective, applying the DeAngelo (1986) model and the modified Jones model (1995). Earnings quality is measured by the change in total accruals divided by total assets, considering a 4-years period of time between 2016 and 2019. Calculating the T-statistic, the amount of total accruals is a negative figure in the covered period. Consequently, it might suggest that managers make some decisions, which have a decreasing impact on earnings level of a company. Although the results of this study show some evidence of earnings management, further investigation is required in order to provide a more confident conclusion.

scholarly journals KONVERGENSI IFRS DAN PELUANG PRAKTIK MANAJEMEN LABA DI INDONESIA: SEBUAH LITERATUR REVIEW

2021 ◽  
Vol 11 (2) ◽  
pp. 130-146
Author(s):  
Arief Hidayatullah Khamainy
Keyword(s):  
Decision Making ◽  
Earnings Management ◽  
Financial Reporting ◽  
Management Practices ◽  
Empirical Studies ◽  
Secondary Data ◽  
Financial Statements ◽  
Literature Study ◽  
High Quality ◽  
Support Decision Making

Earnings management practices result in the fact that the economic conditions in the company's financial statements are not actually presented so that the profits that are expected to provide information to support decision making are doubtful. The existence of IFRS encourages managers to perform high-quality financial reporting, resulting in high-quality earnings as well. This paper aims to analyze the opportunities for earnings management practices after IFRS convergence in Indonesia. The secondary data used in this literature study were obtained from empirical studies on the convergence of IFRS and earnings management in Indonesia. The results of the analysis show that the opportunity for earnings management practices will exist, both after the convergence of IFRS, so the importance of supervision carried out by investors to obtain reliable financial information as a basis for decision making.

scholarly journals Does IFRS Implementation Improve Qualitative Characteristics of Accounting Information: Evidence from Saudi Commercial Banks

2021 ◽  
Vol 2 (1) ◽  
pp. 17-27
Author(s):  
Ibrahim El-Sayed Ebaid
Keyword(s):  
Developing Countries ◽  
Saudi Arabia ◽  
Financial Reporting ◽  
Commercial Banks ◽  
Accounting Information ◽  
Financial Statements ◽  
Developed Countries ◽  
Qualitative Characteristics ◽  
Ifrs Implementation

Purpose: The purpose of this study is to examine the effect of International Financial Reporting Standard (IFRS) implementation on the quality of financial reporting of commercial banks in Saudi Arabia. The quality of financial statements was measured using qualitative characteristics of accounting information i.e., relevance, faith representation, understandability, comparability and timeliness. Approach/Methodology/Design: This study is cross-sectional and a questionnaire was used to collect data   regarding the effect of implementing IFRS on five of the qualitative characteristics of the accounting information, including two of fundamental characteristics: relevance, faithful representation and three of the enhancing characteristics: understandability, comparability, and timeliness. The data was analyzed using descriptive statistics. The population of the study includes all the 12 commercial banks listed in the Saudi Stock Exchange. Findings: The finding of the study reveals that the quality of financial reports which is measured through qualitative characteristics of accounting information (relevance, faith representation understandability, comparability and timeliness) was improved significantly after implementing IFRS compared with the period prior to the implementation of these standards.  Practical Implications: The study has implications for standards makers and users of the financial statements of banks in Saudi Arabia. Results of the study confirm the positive effect of implementing IFRS on the qualitative characteristics of accounting information, which is the basis for decision-making. These results are evidence in support of the transition plan to implement IFRS approved by Saudi Arabia Originality/value: The benefits of implementing IFRS have undergone many studies in developed countries, especially Europe. Little is known about these benefits in developing countries. The study adds to this limited body of studies by examining the effect of implementing IFRS in Saudi Arabia as one of the developing countries.

The Impact of Going Concern on Financial Reporting Quality: Evidence from Vietnam

2018 ◽  
Vol 34 (3) ◽  
Author(s):  
Phung Anh Thu ◽  
Nguyen Vinh Khuong
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Distress ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Viet Nam ◽  
Listed Firms ◽  
Going Concern ◽  
Debt Covenant

The investigation was conducted to contribute empirical evidence of the association between going concern and financial reporting quality of listed firms on the Vietnam stock market. Based on data from 279 companies listed on the HNX and HOSE exchanges in Vietnam for the period 2009-2015, the quantitative research. Results found that the relationship between the going concern and financial reporting quality of listed firms. Research results are significant for investors, regulators to the transparency of financial reporting information. Keywords Going concern, financial reporting quality, listed firms References Agrawal, K., & Chatterjee, C. (2015). Earnings management and financial distress: Evidence from India. Global Business Review, 16(5_suppl), 140S-154S.Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics, 80(3), 511–529.Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126.Charitou, A., Lambertides, N., & Trigeorgis, L. (2007a). Earnings behaviour of financially distressed firms: The role of institutional ownership. Abacus, 43(3), 271–296.Chen, Y., Chen, C., & Huang, S. (2010). An appraisal of financially distressed companies’ earnings management: Evidence from listed companies in China. Pacific Accounting Review, 22(1), 22–41Dechow, P., & Dichev, I. (2002). The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. The Accounting Review, 77, 35-59.DeFond, M., & Jiambalvo, J. (1994). Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, 17(1), 145–176.DeFond, M.L., & Park, C.W. (1997). Smoothing income in anticipation of future earnings. Journal of Accounting and Economics, 23(2), 115–139.Dichev, I., & Skinner, D. (2004). Large sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091–1123.Đinh Thị Thu T., Nguyễn Vĩnh K. (2016). Tác động của hành vi điều chỉnh thu nhập đến khả năng hoạt động liên tục trong kế toán: Nghiên cứu thực nghiệm cho các doanh nghiệp niêm yết tại Việt Nam, Tạp chí phát triển khoa học và công nghệ, Quí 3, tr.96-108.Đỗ Thị Vân Trang (2015). Các mô hình đánh giá chất lượng báo cáo tài chính, Tạp chí chứng khoán Việt Nam, 200, tr 18-21.Habib, A., Uddin Bhuiyan, B., & Islam, A. (2013). Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance, 39(2), 155-180.Jaggi, B., & Lee, P. (2002). Earnings management response to debt covenant violations and debt restructuring. Journal of Accounting, Auditing & Finance, 17(4), 295–324.Kasznik, R., (1999). On the association between voluntary disclosure and earnings management. Journal of accounting research, 37(1), pp.57-81.Lu, J. (1999). An empirical study of earnings management by loss-making listed Chinese companies. KuaijiYanjiu (Accounting Research), (9), 25–35.McNichols, M.F. and Stubben, S.R., (2008). Does earnings management affect firms’ investment decisions?. The accounting review, 83(6), pp.1571-1603.Selahudin, N.F., Zakaria, N.B., & Sanusi, Z.M. (2014). Remodelling the earnings management with the appear- ance of leverage, financial distress and free cash flow: Malaysia and Thailand evidences. Journal of Applied Sciences, 14(21), 2644–2661.Skinner, D.J., & Sloan, R. (2002). Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies, 7(2/3), 289–312.Sweeney, A.P., (1994). Debt-covenant violations and managers' accounting responses. Journal of Accounting & Economics, 17(3): 281-308.Trần Thị Thùy Linh, Mai Hoàng Hạnh (2015). Chất lượng báo cáo tài chính và kỳ hạn nợ ảnh hưởng đến hiệu quả hoạt động của doanh nghiệp Việt Nam, Tạp chí phát triển kinh tế, 10, tr.27-50.Trương Thị Thùy Dương (2017). Nâng cao chất lượng báo cáo tài chính công ty đại chúng, Tạp chí tài chính, 1(3), tr.55-56.Uwuigbe, Ranti, Bernard, (2015). Assessment of the effects of firm’s characteristics on earnings management of listed firms in Nigeria, Asian Economic and Financial Review,5(2):218-228.

scholarly journals Statutory audit in Slovakia – significant phenomenon of global European changes

2020 ◽  
Vol 74 ◽  
pp. 06006
Author(s):  
Denisa Domaracká ◽  
Veronika Kňažková
Keyword(s):  
Financial Reporting ◽  
Global Economy ◽  
Financial Statements ◽  
Legislative Regulation ◽  
Significant Phenomenon ◽  
The Subject ◽  
The Impact ◽  
Regulation Changes ◽  
Audit Performance

The changing global economy environment also affected the area of statutory audit. Nowadays, statutory audit faces the significant changes not only because of the processes of digitization and automation in accounting and auditing, but because of increased and tightened legislative regulation, too. The most important aspects of financial reporting and auditing are subject to EU Regulations and EU Directives. For this reason, the issue of legislative regulation changes in field of statutory audit in Slovakia has become the subject of our article. Currently, the proposal of amending and supplementing Act. No 431/2002 Coll. on Accounting, as amended underwent an interdepartmental comment procedure. The proposal includes the changes on requirements for statutory audit. This article examines the current proposal to change (mainly increase) the conditions for performing the mandatory statutory audit of financial statements in Slovak audit environment. Our goal is to clarify the reasons and implications behind the changes of Slovak legislation as well as the impact of these changes on audit performance in Slovakia. We believe conducting statutory audits in accordance with the applicable legislation accepted and implemented at international European level can contribute to transparency and improve the quality of audit performance. In order to achieve the goal, it was necessary to choose a purposeful work methodology and research methods.

Corporate social responsibility and earnings management in the EU: a panel data analysis approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Panagiotis E. Dimitropoulos
Keyword(s):  
Corporate Social Responsibility ◽  
Panel Data ◽  
Social Responsibility ◽  
Earnings Management ◽  
Financial Reporting ◽  
Negative Association ◽  
Content Type ◽  
Corporate Social ◽  
The Eu

Purpose Over the past decades, corporate social responsibility (CSR) has been considered as a significant corporate strategy and also has been documented as a main information dissemination mechanism of corporations to shareholders, creditors and other external stakeholders. This fact makes the CSR activities and CSR performance interconnected with the quality of firms’ financial reporting. The purpose of this paper is to study the impact of CSR performance on the earnings management (EM) behaviour using a sample from 24 European Union (EU) countries summing up to 121,154 firm-year observations over the period 2003–2018. Design/methodology/approach The study uses a multi-country data set with various dimensions of CSR performance including indexes regarding workforce, community relations, product responsibility and human rights protection. The empirical analysis is conducted with panel data regressions. Findings Evidence supports the negative association between CSR and EM indicating that high CSR performing firms are associated with less income smoothing and discretionary accruals, thus with higher financial reporting quality. Practical implications Regulatory agencies in the EU could use the findings of the study for the improvement of the accounting framework via enhancing the use and publications of social and environmental responsibility information and reports. Social implications Also, the current paper could be of interest not only to academic researchers but also to potential and existing investors in European corporations. The negative association between CSR performance and EM could be used by investors in assessing the risk of firms and the quality and reliability of their financial information. Originality/value This is the first study within the EU, which considers the multi-facet characteristics of CSR on the quality of accounting earnings and offers useful policy implications for regulators and investors.

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

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.

scholarly journals Transparency of local government in Indonesia

2018 ◽  
Vol 3 (1) ◽  
pp. 123-138 ◽  
Author(s):  
I Made Pradana Adiputra ◽  
Sidharta Utama ◽  
Hilda Rossieta
Keyword(s):  
Local Government ◽  
Financial Reporting ◽  
Local Governments ◽  
Financial Statements ◽  
Political Environment ◽  
Content Type ◽  
Audit Opinion ◽  
Government Response ◽  
Positive Effect

Purpose The purpose of this paper is to provide empirical evidence about the influence of the size of local government, the quality of local government financial statements, the level of local government response to the disclosure of financial information and the local political environment on the transparency of local government in Indonesia. Design/methodology/approach The study sample consisted of 34 regional governments (provinces) in Indonesia in 2016, using purposive sampling and multiple regression analysis. Findings The results showed that the quality of financial reporting through the audit opinion and political environment have a significant positive effect on the transparency of local government in Indonesia. On the other hand, the size of the local government and local government response rate on the regulation do not affect the transparency of local government in Indonesia. Originality/value The agency, legitimacy and institutional theory have an important role in the underlying local government transparency practices in Indonesia. The results of this study should be used as the basis of thought and study to determine the factors that affect the performance of local governments from the financial and non-financial aspects.

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