This paper delves into various theories and approaches, aiming to define and differentiate earnings management from related concepts such as fraud, expectation management, and impression management. It explores the goals and incentives driving earnings management, including maximizing or minimizing earnings, beating targets, and smoothing.
At the onset of the new millennium, corporate scandals rocked the business world, eroding trust in management, boards of directors, and the accounting profession. In response, regulations and policies aimed at enhancing corporate governance and financial reporting were swiftly implemented.
The credibility, clarity, and consistency of financial reporting practices play a pivotal role in enabling investors to make informed decisions. Accurate and fair financial performance representations, as opposed to inflated and misleading figures, are essential for market players, including shareholders and creditors. Investors rely on audited financial reports to guide their investment decisions, underscoring the critical importance of accuracy and reliability in publicly available financial disclosures.
Auditors, by reducing the risk of material misstatement, ensure the integrity of the information disclosed in a company's financial statements. Management, with the goal of achieving promised targets and ensuring the company's existence, may engage in earnings management as a strategic contribution to corporate policy.
Financial reporting serves as a means to distinguish well-performing companies from their counterparts, facilitating efficient resource allocation and empowering stakeholders to make effective decisions. The disclosed earnings results significantly impact a firm's overall business activities and management decisions, particularly in satisfying analysts' expectations, which can influence equity value.
While accounting standards play a role, the quality of financial statements is more influenced by company-specific and institutional factors shaping managers' incentives. These factors lead to financial reporting practices being viewed as the outcome of a cost-benefit assessment.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Earnings Management
- Definition
- Differences between earnings management and other concepts
- Fraud
- Expectation Management
- Minimization of Reported Earnings
- Goals and Incentives of Earnings Management
- Impression Management
- Maximization of Reported Earnings
- Income Smoothing
- Meeting the Target
- Types of Earnings Management
- Accrual Earnings Management
- Real Earnings Management
- Income Shift
- Other Accounting Techniques
- Earnings Quality
- Definition
- Determinants of Earnings Quality
- Firm Characteristics
- Financial Standards
- Corporate Governance and Controls
- Auditor Impact
- Equity Market Incentives and other external factors
- Classification of Earning Quality
- Earnings Persistence
- Accruals
- Predictability
- Value Relevance
- Investor Responsiveness to Earnings
- Target Beating
- Smoothness
- Asymmetric timeliness and timely loss recognition
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This master's thesis examines the influence of both real and accrual-based earnings management on the quality of earnings. The study explores the various definitions and types of earnings management, analyzing its goals and incentives. Additionally, the thesis delves into the determinants of earnings quality, including firm characteristics, financial standards, corporate governance, auditor impact, and external factors. Ultimately, it aims to understand how earnings management impacts the persistence, accruals, predictability, value relevance, and investor responsiveness of earnings.
- Earnings Management: Its Definition, Types, and Incentives
- Earnings Quality: Determinants and Classification
- The Influence of Real and Accrual-Based Earnings Management on Earnings Quality
- Implications for Investors, Regulators, and Corporate Governance
- The Role of Financial Standards and Auditing in Mitigating Earnings Management
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter provides an overview of the research topic, outlining the significance of earnings management and earnings quality in the context of financial reporting. It also introduces the research questions and the structure of the thesis.
- Earnings Management: This chapter defines and clarifies the concept of earnings management, distinguishing it from other related concepts like fraud, expectation management, and minimization of reported earnings. It also explores the various goals and incentives behind earnings management, such as impression management, maximization of reported earnings, income smoothing, and meeting targets.
- Types of Earnings Management: This chapter examines the different types of earnings management, focusing on accrual-based earnings management, real earnings management, income shift, and other accounting techniques. It analyzes the mechanisms and motivations behind each type.
- Earnings Quality: This chapter defines earnings quality and explores its key determinants, including firm characteristics, financial standards, corporate governance, auditor impact, and equity market incentives. It also outlines the different aspects of earnings quality, such as earnings persistence, accruals, predictability, value relevance, investor responsiveness to earnings, and other factors.
Schlüsselwörter (Keywords)
This thesis focuses on the key terms of earnings management, earnings quality, accrual-based earnings management, real earnings management, firm characteristics, financial standards, corporate governance, auditor impact, earnings persistence, accruals, predictability, and value relevance. It explores the relationship between these concepts and their impact on financial reporting and investor decision-making.
- Quote paper
- Anonym (Author), 2019, Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality, Munich, GRIN Verlag, https://www.grin.com/document/1441741
