Earnings Management Cosmetics and Tricks: An Exploratory Study

Fatima Sultana, Muhammad Ayub Siddiqui, Muhammad Kashif, Muhammad Wasif Hanif, Sumia Kalsoom

Abstract

This study aims to explore some new causes, motivational factors behind manipulation of earnings management and its controlling measures through qualitative research methods in Pakistani context. Traditionally, many studies have been carried out in this field by using quantitative version. To break the saturation and to explore and identify more versions related to earnings management, qualitative approach has been followed in this study. Data were collected through semi-structured interviews from auditors, credit analysts, investors and academicians of accounting and analyzed using NVivo 10, software. Many quantitative studies have been conducted regarding the causes of earnings management; however, this novel study provides in-depth motivation behind earnings management, responsible entities for such manipulations and remedial actions in practical life by conducting interviews with most relevant bodies dealing with accounting statements. This study, in addition to traditional factors, has singled out the role of government and auditors, the attitude of managers and owners as the new entities responsible for earnings management. Reporting quality can be improved by having proper check and balance from government level, from the Security and Exchange Commission of Pakistan (SECP) and from auditors. Government and SECP can check whether the rules and regulations set for the companies are being implemented properly, and auditors can check whether companies are presenting their true picture to the outsiders. Additionally, the involvement of managers on the board should be reduced. Small sample size, time consuming semi-structured interviews, limited number of interviewees’ groups, non-availability of the experienced respondents and financial constraints in a qualitative study are a few leading limitations. The limitations may include the extent of the researchers’ bias, lack of comfort level for some respondents with the audio recording, but the authors have tried to maintain these limitations at the minimum possible level. Empirical studies can be conducted to scientifically investigate the extent of the relationship between these new entities and earnings management with more recommendations for stakeholders in the corporate sector in Pakistan and the economies with similar characteristics.

 

Keywords: financial statements, real activities manipulation, earnings management, agency problems, Pakistan.

 

https://doi.org/10.55463/issn.1674-2974.49.10.17


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