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This implies that corporate managers, auditors, board of directors, investors and regulatory agencies
urgently need to be able to detect and prevent potential earnings frauds. The last section concludes
the paper. 2. Definition and Various Forms of Real Earnings Management In this section, I first
review some definitions of REM to better understand the practice of REM and conclude a
definition. In other word, it is an earnings management practice related specifically to cash
accounting 3. Report this Document Download now Save Save A Review of the Earnings
Management Literature and. The literature review allows me to conclude that REM remains a fertile
ground for academics research. REM is often difficult to detect because it is properly disclosed in the
financial statements (Shipper, 1989). Section 2 presents definitions and various forms of REM.
Cohen et al. (2008) document that managers switch from accruals management to REM on response
to increased litigation risk after the passage of SOX. Manipulation of financial statements seems to
be a generally present phenomenon, and the paper aims to identify the criteria used by members of
the accounting profession in the Federation of Bosnia and Hercegovina (FBiH) to distinguish
earnings management techniques from fraudulent financial reporting. Crossing the hedge would lead
the organization to be convicted in illegal financial reporting. Purposive sampling techniques are
employed, with a new sample of observational data from the manufacturing company for the period
2019-2021. You can download the paper by clicking the button above. Structured Literature Review
(SLR) is used to investigate how earnings management develops and focuses. For its part, Janin
(2000) states that: REM involves real business activities that have a direct impact on operating cash-
flows. Reducing such expenses will boost current period earnings. Another advantage of altering real
activities to manipulate earnings is that auditors and regulators are less likely to be concerned with
such behavior. Agency theory assumes that the agents have more information than the principals. The
greater ownership of financial institutions, the greater the power of financial. In other words,
managers manipulate real decisions to serve their personal interests. Bonuses will be given (as
explained in the bonus scheme) if the managers are able. In this study, we focus on the optional
operating cash flow, optional cost and production cost as real earnings management representatives
as well as discretionary accruals as an earnings management accounting representative. Download
Free PDF View PDF Accounting Frauds: A Review of Literature clement ajekwe, Nicholas Adzor
The business community requires transparent corporate reports to ensure that investment decisions
are not based on materially misstated financial statements. Samples used are the whole listed
companies (122 samples) in IDX for the year. Secondary data sources are used, namely, companies
listed on the Indonesian Stock Exchange. For earnings smoothing hypothesis which predicts that
earnings are manipulated to reduce fluctuation around some level that is considered normal for the
firm (Ronen and Sadan, 1981). Multiple regression and combined data and GLS models (generalized
least squares) were used to analyze the data. A discussion and future avenue of research will be the
subject of section 5. Healy and Whalen (1999, p. 368) state that: “ Earnings management occurs
when managers use judgment in financial reporting and in structuring transactions to alter financial
reports to either mislead some stakeholders about the underlying economic performance of the
company or to influence contractual outcomes that depend on reported accounting numbers ”. The
other purpose of this research was to compare with the results of the previous research. It could also
lead to higher current period cash flows if the firm generally paid for such expenses in cash.
For meeting earnings management threshold, prior literature has indicated that the REM is guided
primarily by the desire to meet or beat certain earnings management thresholds. Report this
Document Download now Save Save A Review of the Earnings Management Literature and.
Specifically, the review focuses on REM definitions, motivations, techniques, consequences, and
measurement. I recognize three capital market motivations for REM: meeting earnings management
threshold, earnings smoothing and specific stock market situations. The results show that there is a
significant relationship between real earnings management and earnings management based on
accruals to achieve an average profitability of stock companies. According to the definitions of
Shipper (1989), Janin (2000), Ewert and Wagenhofer (2005) and Roychowdhury (2006), I conclude
that REM: First, alters earnings through the timing or the magnitude of real decisions (operating,
investing or financing activities) according to the desired earnings target. Concurring with Zahra,
Priem and Rasheed (2005), the paper calls for further research to understand the motivational factors
of fraud behaviour as well as adopting forensic accounting techniques to enhance the probability of
detecting fraud in a timely, cost effective manner. Secondary data sources are used, namely,
companies listed on the Indonesian Stock Exchange. The positive accounting theory initiated by
Watts and Zimmerman (1978, 1986), aims to predict and explain accounting practices. We are
witnessing the last few years to the publication of several research papers on the subject of REM
(e.g. Gunny, 2005; Roychowdhury, 2006; Xu et al. 2007; Cohen et al. 2008; Gunny, 2010; Seybert,
2010; Taylor and Xu, 2010; Zang, 2012). Thus, based on the definition of earnings management
discussed by Healy and Whalen (1999), two types of earnings management which executives can
use to alter earnings are documented: earnings management through accounting decisions or accruals
- described as “Accounting Earnings Management” and earnings management through real business
decisions or real activities - identified as “Real Earnings Management, REM”. To browse
Academia.edu and the wider internet faster and more securely, please take a few seconds to upgrade
your browser. Secondary data is used, and the hypotheses are testing using logistic regression
analysis. Constraints of Real Earnings Management 4.1. Board Independent Directors 4.2.
Institutional Ownership 4.3. Executive Compensation Committee 4.4. Firms Characteristics 4.5.
Accounting Standards 5. Useful suggestions for REM research opportunities are also provided. The
literature review seeks to improve understanding of the fraudulent financial statement anatomy, its
factors, motivations and antecedents-the knowledge of which can improve our detection and
prevention ability. The aim of this paper is to conduct a literature review on the subject. In this case,
I can say that management decisions do not lead to a credible representation of economic
performance. Among these questions, as mentioned by XU et al. (2007), is the factors that induce
and mitigate REM. Given that the REM is considered as a new field of research, it contains
unanswered questions. This is important because fraudulent reporting can erode investor's confidence
and thereby reduce investment in the company. This paper reviews the recent studies on REM to
provide updated and comprehensive information about this type of earnings management. Indeed,
managers are motivated to show a good image of their company towards its stakeholders. There is
also a positive and significant relationship between accrual-based earnings management and average
profitability, a positive and significant relatio. This study aims to examine the preference for earnings
management (EM) strategies according to business strategies, namely, cost leadership strategies and
differentiation strategies. Rochowdhury (2006) explains this form of REM by providing limited time
discounts to increase sales toward the end of the year and building up excess inventory to lower
reported COGS. I find that a several studies have examined REM only with the motivation of
minimizing the cost of debt: Zamri et al. (2013), Kim et al. (2010), Roychowdhury (2006), Bartov
(1993), and Haw et al. (1991). The personal incentives are related to the manager's use of him
opportunistic behavior to beat informal goals. Samples used are the whole listed companies (122
samples) in IDX for the year. Besides, I have identified little research concerning corporate
governance initiatives to mitigate the opportunism managerial by manipulating real activities. This
study uses keywords such as “Profit” and “Earnings Management” to identify studies that are
relevant to a particular topic.
Multiple linear regressions and hypothesis testing are used as the data analysis method in this
research. Samples were collected using purposive sampling method, where 93 companies fulfill the
criteria. Agency theory assumes that the agents have more information than the principals. Their
findings show the importance of REM activities around a specific corporate finance event, SEOs.
3.2. Opportunistic Motivations REM can be used by managers as a means to satisfy their own
interests. However, creative accounting techniques are often used in the process of preparing and
presenting financial statements in order to manage earnings and manipulate financial values. This
study provides insight into future earnings management research that is used by researchers to
develop Earnings Management research. We are witnessing the last few years to the publication of
several research papers on the subject of REM (e.g. Gunny, 2005; Roychowdhury, 2006; Xu et al.
2007; Cohen et al. 2008; Gunny, 2010; Seybert, 2010; Taylor and Xu, 2010; Zang, 2012). Download
Free PDF View PDF The Accounting Journal of Binaniaga Earnings Management: Literature Study
of Current Development Maya Sari This study purposes to provide a broad overview of current
earnings management through a literature study for the 2017-2022 period. If managers are owning
company’s shares, managers will have more motivation. Another advantage of altering real activities
to manipulate earnings is that auditors and regulators are less likely to be concerned with such
behavior. Finally, a discussions and a variety of directions for future research are set out in this paper.
For its part, Janin (2000) states that: REM involves real business activities that have a direct impact
on operating cash-flows. Rochowdhury (2006) explains this form of REM by providing limited time
discounts to increase sales toward the end of the year and building up excess inventory to lower
reported COGS. Specifically, this paper offers a better comprehension of the practice of REM and
this is by proposing a definition after reading other definition presented in the literature. The review
of the literature showed that companies have shifted earnings management practising from accruals-
based to real activities based. Specifically, the review focuses on REM definitions, motivations,
techniques, consequences, and measurement. I think it will be interesting to see why theses corporate
governance mechanisms could not restrain REM over time and how auditors and audit committees
view the use of REM. Some researchers (Burgstahler and Dichev, 1997; Thomas and Zhang, 2002;
Roychowdhury, 2006; Eldenburg et al. 2011; Gunny, 2010) found evidence that firms engage in
REM to avoid small losses and earnings decreases. To browse Academia.edu and the wider internet
faster and more securely, please take a few seconds to upgrade your browser. For earnings smoothing
hypothesis which predicts that earnings are manipulated to reduce fluctuation around some level that
is considered normal for the firm (Ronen and Sadan, 1981). Useful suggestions for REM research
opportunities are also provided. He shows that high self-monitors are most likely to overinvest,
suggesting that reputation concerns contribute to this behavior. If the managers have a motivation to
make creditors. In this case, I can say that management decisions do not lead to a credible
representation of economic performance. Also, this paper reviews the different incentives and
constraints to the real earnings management. It reveals that earnings manipulation seems helpful and
appealing in current situation but creates problems in future. Roychowdhury (2006) documents that
in order to avoid reporting earnings losses or to avoid missing earnings analyst earnings forecasts,
managers often reduce discretionary expenditures. The most empirical previous studies in the REM
literature use the measures from Roychowdhury (2006). The results show that there is a significant
relationship between real earnings management and earnings management based on accruals to
achieve an average profitability of stock companies. REM is often difficult to detect because it is
properly disclosed in the financial statements (Shipper, 1989).
Anam Nazir Economics, Business 2021: This study focus on trade-off decision between earnings
management strategies. Another advantage of altering real activities to manipulate earnings is that
auditors and regulators are less likely to be concerned with such behavior. Report this Document
Download now Save Save A Review of the Earnings Management Literature and. More precisely, I
tried to better define real earnings management and to clarify the various forms of real earnings
management. For Later 0% 0% found this document useful, Mark this document as useful 0% 0%
found this document not useful, Mark this document as not useful Embed Share Print Download
now Jump to Page You are on page 1 of 19 Search inside document. Applied methods and
techniques of recognition and measurement of financial positions should be in the purpose of
realistic and transparent presentation of the financial performances of the entity. Smith, 1985) that
could lead to a divergence in the pursuit of managerial interests. In summary, I define the REM as: “
change on the timing or structuring of management decision (real business decisions related to the
operating, investing or financing activities), that have a direct impact on cash flows and thus in
earnings, motivated by managers’ desire to mislead stakeholders about the real performance of the
company ”. Also, managers of manufacturing firms can produce more goods than necessary to meet
expected demand in order to manage earnings upward. There is also a positive and significant
relationship between accrual-based earnings management and average profitability, a positive and
significant relatio. I draw two main opportunistic motivations for real management which are
identified as: Contractual incentives (agency relationship) and personal incentives (ensuring a good
reputation). She argued that this factor mitigates REM. 4.4. Firms Characteristics Other factors
related to the firm characteristics could mitigate REM such as: firms without market-leader status,
firms with poor financial health and firms with higher marginal tax rates, Zang (2012). 4.5.
Accounting Standards There is current debate on whether IFRS can play an effective role in reducing
earnings management by limiting opportunistic management discretions in managing real activities.
REM has the advantage that it has a direct impact on cash-flows of the company. Download Free
PDF View PDF The Accounting Journal of Binaniaga Earnings Management: Literature Study of
Current Development Maya Sari This study purposes to provide a broad overview of current
earnings management through a literature study for the 2017-2022 period. In this case, I talk about
capital market incentives. The research reflects the perception of accountants and auditors in the
FBiH regarding the possibility of recognizing suspicious accounting practices in. Thus, based on the
definition of earnings management discussed by Healy and Whalen (1999), two types of earnings
management which executives can use to alter earnings are documented: earnings management
through accounting decisions or accruals - described as “Accounting Earnings Management” and
earnings management through real business decisions or real activities - identified as “Real Earnings
Management, REM”. Second, has a direct impact on the operating cash flows and consequently on
the earnings. Wheatley Business, Economics 2017 Purpose - The purpose of this study is to refine
what is characterized as real earnings management. However, the accounting earnings management
does not offer this flexibility. A good quality auditor also acts as an effective deterrent. Discussions
and Suggestions for Future Research Despite the increasing interest in and importance of REM, I
think there are many challenges in studying this subject. Some researchers (Burgstahler and Dichev,
1997; Thomas and Zhang, 2002; Roychowdhury, 2006; Eldenburg et al. 2011; Gunny, 2010) found
evidence that firms engage in REM to avoid small losses and earnings decreases. They do not study
the properties of alternative REM measures and the statistical tests based on them. This implies that
reported COGS is lower, and the firm reports better operating margins. Download Free PDF View
PDF BH Ekonomski forum Earnings management and fraudulent financial reporting: Distinctive
criteria of suspicious accounting practices Senada Dupovac The financial reports, as the final product
of the accounting information system, need to be accurate in order to maintain the main purpose of
financial reporting. The greater ownership of financial institutions, the greater the power of financial.
Reducing such expenses will boost current period earnings. For example, two papers (Chi et al. 2011,
Sun et al. 2014) showed that audit quality and audit committees are associated positively with the
REM. This research used non-financial companies listed in Indonesia Stock Exchange (IDX) during
the research period 2014 until 2017.
Also, this paper reviews the different incentives and constraints to the real earnings management.
Given that the REM is considered as a new field of research, it contains unanswered questions. REM
has the advantage that it has a direct impact on cash-flows of the company. I draw two main
opportunistic motivations for real management which are identified as: Contractual incentives
(agency relationship) and personal incentives (ensuring a good reputation). The greater ownership of
financial institutions, the greater the power of financial. This study uses keywords such as “Profit”
and “Earnings Management” to identify studies that are relevant to a particular topic. In this case, I
talk about capital market incentives. With higher production levels, fixed overhead costs are spread
over a larger number of units, lowering fixed costs per unit. However, the accounting earnings
management does not offer this flexibility. Novelty-Based on these findings, this research provides
insight to companies to enable them to give greater attention to abnormal cash flow from operating
activities due to the effect this has on companies that are suspected of committing irregularities in its
operational activities. Among these questions, as mentioned by XU et al. (2007), is the factors that
induce and mitigate REM. It also outlines the various forms of REM, incentives and constraints of
REM. Semantic Scholar is a free, AI-powered research tool for scientific literature, based at the
Allen Institute for AI. And, following Roychowdhury (2006), real earnings management is
measured by abnormal cash flow from operations, abnormal production costs, and abnormal
discretionary expenditure. I think it will be interesting to see why theses corporate governance
mechanisms could not restrain REM over time and how auditors and audit committees view the use
of REM. Whereas, Roychowdhury (2006) finds some evidence consistent with the notion that
managers engage in REM activities to meet analysts’ forecasts. Discussions and Suggestions for
Future Research Despite the increasing interest in and importance of REM, I think there are many
challenges in studying this subject. Besides, I have identified little research concerning corporate
governance initiatives to mitigate the opportunism managerial by manipulating real activities. More
precisely, I tried to better define real earnings management and to clarify the various forms of real
earnings management. The literature review allows me to conclude that REM remains a fertile
ground for academics research. Sohn Economics, Business 2013 258 1 Excerpt Save Consequences
of Real Earnings Management on Subsequent Operating Performance Gary K. Taylor R. Xu
Business, Economics 2010 94 1 Excerpt Save Earnings Management: A Perspective M. Specifically,
the review focuses on REM definitions, motivations, techniques, consequences, and measurement.
Thus, based on the definition of earnings management discussed by Healy and Whalen (1999), two
types of earnings management which executives can use to alter earnings are documented: earnings
management through accounting decisions or accruals - described as “Accounting Earnings
Management” and earnings management through real business decisions or real activities - identified
as “Real Earnings Management, REM”. The positive accounting theory initiated by Watts and
Zimmerman (1978, 1986), aims to predict and explain accounting practices. The last section
concludes the paper. 2. Definition and Various Forms of Real Earnings Management In this section,
I first review some definitions of REM to better understand the practice of REM and conclude a
definition. Wheatley Business, Economics 2017 Purpose - The purpose of this study is to refine what
is characterized as real earnings management. I recognize three capital market motivations for REM:
meeting earnings management threshold, earnings smoothing and specific stock market situations.
Also, managers of manufacturing firms can produce more goods than necessary to meet expected
demand in order to manage earnings upward. Consistent with these arguments state above, Xu et al.
(2007) document that the accounting earnings management via accruals is likely to be more costly to
mangers because they cannot legally be held responsible for REM as long as the outcomes of REM
are properly disclosed in the financial statements. Terima kasih juga penulis ucapkan kepada teman-
teman angkatan 2008.
Joshi Business, Economics Journal of Financial Reporting and Accounting 2021 Purpose. According
to the definitions of Shipper (1989), Janin (2000), Ewert and Wagenhofer (2005) and Roychowdhury
(2006), I conclude that REM: First, alters earnings through the timing or the magnitude of real
decisions (operating, investing or financing activities) according to the desired earnings target. The
literature review seeks to improve understanding of the fraudulent financial statement anatomy, its
factors, motivations and antecedents-the knowledge of which can improve our detection and
prevention ability. Secondary data is used, and the hypotheses are testing using logistic regression
analysis. They do not study the properties of alternative REM measures and the statistical tests based
on them. When the company can fulfill the contract, firms will. More precisely, I tried to better
define real earnings management and to clarify the various forms of real earnings management. The
results show that there is a significant relationship between real earnings management and earnings
management based on accruals to achieve an average profitability of stock companies. Applied
methods and techniques of recognition and measurement of financial positions should be in the
purpose of realistic and transparent presentation of the financial performances of the entity. Although
there are some overlaps in both concepts, application of earnings management is not always related
to financial statement fraud. If managers are owning company’s shares, managers will have more
motivation. Terima kasih juga penulis ucapkan kepada teman-teman angkatan 2008. This is important
because fraudulent reporting can erode investor's confidence and thereby reduce investment in the
company. Report this Document Download now Save Save A Review of the Earnings Management
Literature and. Whereas, Roychowdhury (2006) finds some evidence consistent with the notion that
managers engage in REM activities to meet analysts’ forecasts. The purpose of this paper is to make
a review of literature of incentives and constraints of REM. The greater ownership of financial
institutions, the greater the power of financial. The review of the literature showed that companies
have shifted earnings management practising from accruals-based to real activities based. Semantic
Scholar is a free, AI-powered research tool for scientific literature, based at the Allen Institute for
AI. Another advantage of altering real activities to manipulate earnings is that auditors and
regulators are less likely to be concerned with such behavior. In other hand, Herrmann et al. (2003)
find that Japanese manager’s use discretion via income from asset sales to reduce management
forecast error. The increased sales volumes as a result of the discounts are likely to disappear. And,
following Roychowdhury (2006), real earnings management is measured by abnormal cash flow
from operations, abnormal production costs, and abnormal discretionary expenditure. As the clients
have such inflexibility, they have an. More precisely, the finding demonstrates that income from asset
sales is significantly higher for firms that exhibit decreases in annual earnings than for firm
experiencing increases. Manipulation of financial statements seems to be a generally present
phenomenon, and the paper aims to identify the criteria used by members of the accounting
profession in the Federation of Bosnia and Hercegovina (FBiH) to distinguish earnings management
techniques from fraudulent financial reporting. This study identifies the main directions of Earnings
Management research in the 2017-2022 period and discusses several important aspects of the
research, namely methodology, research methods, and theory used. We reminder that earnings are the
sum of accruals and operating cash-flows. 4. This list of REM activities is not discussed in detail in
the current paper. This study uses keywords such as “Profit” and “Earnings Management” to identify
studies that are relevant to a particular topic. However, the accounting earnings management does
not offer this flexibility.