Earnings Management: A Review of Selected Cases

The past decade has been characterized as a period of financial crisis. A number of high-profile cases have highlighted the role offinancial reporting and the issues surrounding earnings management. The flood of these so-called ‘accounting scandals’ and thealarming increase in accounting revisions and restatements has drawn the attention around the globe of accounting researchers andthe popular press alike. Among the questions that need explanation are: 1) ‘What is earnings management or mismanagement?’ 2)‘What is the role of judgment in ethical financial reporting?’ and 3) ‘What are the difficulties of identifying earnings management?’.In order to answer these research questions,this paper reviews a literature on the topic and then identifies and places on an earningsmanagement continuum some of the major cases globally over the last decade.
Anahtar Kelimeler:

Earnings management, Judgement

Earnings Management: A Review of Selected Cases

The past decade has been characterized as a period of financial crisis. A number of high-profile cases have highlighted the role offinancial reporting and the issues surrounding earnings management. The flood of these so-called ‘accounting scandals’ and thealarming increase in accounting revisions and restatements has drawn the attention around the globe of accounting researchers andthe popular press alike. Among the questions that need explanation are: 1) ‘What is earnings management or mismanagement?’ 2)‘What is the role of judgment in ethical financial reporting?’ and 3) ‘What are the difficulties of identifying earnings management?’.In order to answer these research questions,this paper reviews a literature on the topic and then identifies and places on an earningsmanagement continuum some of the major cases globally over the last decade.

___

  • AccountingMalpractice.com Arya, A., Glover, J., & Sunder, S. (2003). Are unmanaged earnings always better for shareholders? Accounting Horizons, Supplement 2003, 111–112. Barth, M. E. (2018). The future of financial reporting: Insights from research. Abacus, 54(1), 66-78. Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2010). Fraudulent financial reporting 1998– 2007: An analysis of U.S. public companies. Committee of Sponsoring Organizations of the Treadway Commission (COSO). Bergstresser, D. & Philippon, D. (2006). CEO Incentives and Earnings Management. Journal of Financial Economics 80, 511–529. Burr, B. (2011). Mark-to-market accounting helps companies shift pension plan losses. Pensions and Investments, February 21, 2011. Christensen, T., Paik, D., & Williams, C. (2010). Market efficiency and investor reactions to SEC fraud investigations. Journal of Forensic & Investigative Accounting, Special Issue, 2(3). Cyran, R., Currie, A., & Cox, R. (2011). Fuzzy accounting enriches Groupon. NYTimes.com, June 12. Available at: http://www.nytimes.com/2011/06/13/business/13views.html Dechow, P. M. & Skinner, D. J. (2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons, 14(2), 239.\ Durtschi, C. & Easton, P. (2005). Earnings management? The shapes of the frequency distributions of earnings metrics are not evidence ipso facto. Journal of Accounting Research, 43(4), 57–59. Durtschi, C. & Easton, P.. (2009). Earnings management? Erroneous inferences based on earnings frequency distributions. Journal of Accounting Research, 47(5), 1249–1281. Enron Corporation. (2002). 2001 Annual Report. Houston, TX. Feng, M., Ge, W., Luo, S., & Shevlin, T. (2011). The role of CFOs in material accounting manipulations―the Executive Summary. The Conference Board, May 2011. Healy, P. M. & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365–383. International Accounting Standards Board (IASB) (2010), The Conceptual Framework for Financial Reporting 2010, London: IASB. Jackson, S. B. & Pitman, M. K. (2001). Auditors and earnings management. The CPA Journal, July 2001. Available at: http://www.nysscpa.org/cpajournal/2001/0700/features/f073801.htm. Kripalani, M. (2009). India’s Madoff? Satyam scandal rocks outsourcing industry. [Electronic version]. Business Week,. January 2009. Available at: http://www.businessweek.com/globalbiz/content/jan2009/gb2009017_807784.htm. McKee, T. E. (2005). Earnings management: An executive perspective. Mason, OH: Thomson/South-Western. Needles Jr., B. E., Frigo, M., & Powers, M. (2006). Strategy and integrated financial ratio performance measures: Further evidence of the financial performance scorecard and high-performance companies. In Studies in Financial and Managerial Accounting, ed. Mark Epstein and J.-F. Manzoni, Vol. 16. London: JAI Elsevier Science Ltd. Needles Jr., B. E., Powers, M., & Frigo, M. (2008). Performance measurement and executive compensation: Practices of high performance companies. In Studies in Financial and Managerial Accounting, ed. M. Epstein and J.-F. Manzoni, Vol. 18. London: JAI Elsevier Science Ltd. Raice, S., & Wingfield, N. (2011). Groupon’s accounting lingo gets scrutiny. The WSJ.com, July 25. Available at: http://online.wsj.com/article/SB10001424053111903635604576472531846174782.html Rapoport, M. (2011). Rewriting pension history. Wall Street Journal, March 9. Reason, T. (2009). Pro-Forma distraction at Satyam. CFO Magazine, January 20, 2009. Available at: http://www.cfo.com/article.cfm/1296444/c_13047759?f=insidecfoeurope. Silver, B. (2009). Manipulating earnings: From legal techniques to outright fraud. financialstatements.suite101.com, September 2009. Available at: http://financialstatements.suite101.com/article.cfm/spotting_earnings_management. Southwest Airlines Inc. (2003). 2002 Annual Report. Dallas, TX. The Commission on Accounting Higher Education: Pathways to a Profession. Available at:www.PathwaysCommission.org Time Warner Inc. (2010). Time Warner Annual Report, 2009. New York, NY. Tong, Y. H. & Miao. B. (2011) Are dividends associated with the quality of earnings? Accounting Horizons, 25(1), 183. Turner, J. & Vann, C. (2010). Audit committee independence and earnings management: How independent are independent directors? Journal of Forensic & Investigative Accounting, Special Issue, 2(3). USA Today. (2002). Microsoft settles accounting charges with SEC. USA Today (June 3). Wyatt, E. (2010). Dell to pay $100 million settlement. The New York Times, July 22. Available at: http://www.nytimes.com/2010/07/23/business/23dell.html. Yaping, N. (2006). A different perspective of earnings management. Canadian Social Science, 2, No. 4, 53