Earnings Management and Fraudulent Financial Reporting: The Malaysian Story (original) (raw)
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Accounting and Finance Review Earnings Management and Fraudulent Financial Reporting
Objective-The objective of this research is to obtain empirical evidence about the effect of real earnings management that is proxied by abnormal Cash Flow from operating and discretionary expenses towards fraudulent financial reporting. Methodology/Technique-The objects in this research are companies listed on the Indonesian Stock Exchange (idx) between 2011 and 2015 comprised of companies that have engaged in fraudulent activities as well as those that have not, to enable a comparison to be made. The companies that have engaged in fraudulent financial reporting were obtained from a list issued by the Financial Services Authority (OJK), being the agency that oversees the capital market in Indonesia. The sampling is conducted using purposive sampling. Secondary data is used, and the hypotheses are testing using logistic regression analysis. Findings-The results of this research show that: (1) Real Earning Management proxied by Abnormal Cash Flow from operating activities (CFO) have a significant effect towards Fraudulent Financial Reporting (FFR), (2) Real Earning Management proxied by Abnormal Discretionary Expenses does not have an effect on Fraudulent Financial Reporting (FFR) and (3) Real Earning Management that is proxied by Abnormal Cash Flow from operating (CFO) and Abnormal Discretionary Expenses have a simultaneous and significant effect on Fraudulent Financial Reporting (FFR). 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. This is important because fraudulent reporting can erode investor's confidence and thereby reduce investment in the company. Type of Paper: Empirical.
Studies on Earnings Management and Financial Statement Fraud in Corporate Firms
Research in World Economy
The purpose of this paper is to explain the transformation of earnings management into financial statement fraud. Related papers on earnings management and financial statement fraud were intensively reviewed. Although there are some overlaps in both concepts, application of earnings management is not always related to financial statement fraud. Earnings management can occur for a number of reasons, including unintentional errors and legitimate disagreement over GAAP. Results of this study indicate that accounting records are allowed to be managed up to certain hedge. Crossing the hedge would lead the organization to be convicted in illegal financial reporting.
The influence of fraud triangle factors on real earnings management
Journal of Governance and Regulation
This study aims to examine the relationship between factors of pressure, opportunity, and rationalization, and the occurrence of real earnings management among Malaysian public listed companies. The study used a sample of 557 Malaysian public listed companies between 2017 and 2019, comprising a total of 1,671 firm-year observations. Replicating a study by Khanh and Nguyen (2018), but not limited to external governance of audit quality, the study added to the knowledge of real earnings management by taking into account the effect of internal governance such as board independence and multiple directorships. And, following Roychowdhury (2006), real earnings management is measured by abnormal cash flow from operations, abnormal production costs, and abnormal discretionary expenditure. The results from regression analysis show that there is a negative and significant association between financial performance, measured by return on assets, and real earnings management. In addition, the re...
International Journal of Management, Accounting and Economics, 2018
This research investigates the behavior of the managers of the Bangladeshi firms in applying Earnings manipulation through the technique of Accruals Earnings Management (AEM). This study examines whether the firm managers of Bangladesh involve themselves in earnings manipulation in the form of accruals earnings management that whether they beat of meat the earnings benchmarks in the context of Return on Assets, Changes in Return on Assets, Earnings per Shares and Changes in Earnings per Shares. The modified Cross Sectional Jones (1991) model has been applied to estimate the proxy for accruals earnings management (Abnormal Accruals) by using a 1652 firm-years observations of 168 companies of 10 industries (excluding Banking Industry, Financial Institutions, Insurance Industries and Telecommunication industries) over the 15 years from 2002 to 2016. Managers of other variables of accruals earnings management activities, this research reports that there is no evidence of earnings manipulation in the form of accruals earnings management from the evidence from Bangladeshi firms.
The International Journal of Humanities & Social Studies, 2020
These financial statements should not be intentionally prepared to mislead the user, but must provide reliable, timely, and relevant information to assist users when it comes to making important decisions (Kibiya, Che-Ahmad &Amran, 2016). This implies that information should be evidently recent, with additional facts supplied in the supporting foot note as a desire to assist in clarification. The information should not have any material error and bias, and should not be misleading (Kingsley, Gina & Vivian, 2014). Hence, the information needs to faithfully present the business activity and other events, reproduce basic substance of events and cautiously represent estimates and uncertainties using proper disclosure (Ofoegbu & Okoye, 2011). The steadfastness of this information depends on the relevance and reliability of accounting earning. Malaysia has not been insulated from firms' mischief and misconduct. Numerous eminent financial improprieties have taken place in Malaysia associated with large firms such as Transmile Group Bhd., Malaysian Airlines Systems, LFE corporation Berhad, PromtoBhd and MEMS Technology Bhd (Hasnan, Rahman & Mahenthiran, 2013). Sadique, Roudaki, Clark and Alias (2010) referred to a survey by PricewaterhouseCoopers that 48% of the companies in Malaysia were victims of economic crime, and with regard to fraud, 62% of listed companies were affected. The series of corporate scandals has caused a lot of damage to investors' confidence in the capital market of Malaysia (Kallamu & Saat, 2015). Due to the financial fraud cases highlighted above, Hasnan et al. (2013) argued that usually fraudulent financial reporting begins as earnings management (EM) and exhausts the most aggressive Generally Accepted Accounting Principles (GAAP) and grows over time to become norm. However, earnings management (EM) might be beneficial to reach stockholders' incentives and improves the information value of earnings (Rezaei & Roshani, 2012). There are two
Asian Journal of Economics, Business and Accounting
This study aims to examine the phenomenon of corruption fraud which is proxied by earning management in companies listed on the Indonesia Stock Exchange. This study uses the variables of leverage, capital expenditure, and profitability as key variables that influence earning management practices that lead to fraud and corruption. This study uses time-series data from 2017 to 2021 and selects a sample by purposive sampling of as many as 28 companies listed on the Indonesia Stock Exchange. The results of the study found that the key variables of leverage, capital expenditure, and profitability, turned out to have a positive and significant effect on corruption fraud which was proxied by earning management. The contribution of this research is mainly to the management of shareholders, practitioners, and investors to predict the possibility of earning management practices that lead to corruption fraud committed by the company. The originality of this research is mainly in measuring corr...
Asia-Pacific Management Accounting Journal/Asia-Pacific management accounting journal, 2024
Corporate governance mechanisms provide a framework to mitigate managerial misbehaviour, including the manipulation of earnings. Despite their intended functions, the persistence of earnings management practices remains, ultimately contributing to instances of financial reporting fraud. Thus, this study aimed to examine how corporate governance attributes may affect the occurrence of earnings management, in particular real earnings management among Indonesian fraudulent and non-fraudulent listed companies. Using 192 firm-year observations, in the span of 2012-2021, the findings showed that educational background of the board of commissioners and board of directors significantly affected real earnings management practices. Nevertheless, this study failed to find a significant relationship between real earnings management and other corporate governance attributes, including changes in the board of commissioners (BOC), changes in the board of directors (BOD), the independence of BOC, the size of the audit committee, and the occurrence of auditor change. The findings of this study provide preliminary evidence on the importance of board education to influence real earnings management practices.
BH Ekonomski forum
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. 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. 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. 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. The research reflects the perception of accountants and auditors in the FBiH regarding the possibility of recognizing suspicious accounting practices in...
Fraud Risk and Earnings Management
JOURNAL OF MANAGEMENT POLICIES AND PRACTICES
Earnings management is an effort made by management with the aim of managing financial statements within the limits permitted by accounting principles with the aim of the manager's personal interests. The purpose of this study was to examine the effect of fraud risk factors on earnings management behavior. Variables that are thought to influence earnings management are financial stability, financial targets, external pressure, effective monitoring, organizational structure, and auditor switching. The samples obtained were 37 companies registered in 2014-2017 using multiple regressions. The results showed that the variables of financial stability, external pressure, effective monitoring, organizational structure and auditor switching did not affect earnings management while the financial target variables negatively affected earnings management.