Academic journal article Academy of Accounting and Financial Studies Journal

The Role of Accounting Auditing in Activating the Control on Earnings Management and Identifying Its Reverse Effects: An Applied Study to a Sample of Iraqi Companies

Academic journal article Academy of Accounting and Financial Studies Journal

The Role of Accounting Auditing in Activating the Control on Earnings Management and Identifying Its Reverse Effects: An Applied Study to a Sample of Iraqi Companies

Article excerpt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Among the controversial behavioral models are the decisions taken by management to control the accounting information on which the parties interested in economic unity are based. Such decisions may have a positive or negative effect on the net earnings, which may be considered by some as a manipulation of accounting information as long as this behavior is deliberate, while others consider it to be misleading, even if it is immoral, as long as it serves the interests of economic unity. The management's behavior may either reduce income to reduce taxes or increase it to increase the remuneration of board members, or reduce it by lowering it if it is high or increasing if it is low. Although there is a difference in the motives of the management, the behavior of the income effect takes one of the previous trends. This is known as 'earnings management'. So, earnings management is carried out with the aim of influencing accounting earnings by exploiting some flexibility allowed by accounting policies and personal estimates practices. Therefore, the disclosure of such practices and attempts to highlight their impact on the results of financial and accounting make management take responsibilities for the risks involved in such practices to shareholders, investors and other groups.

RESEARCH METHODOLOGY

Problem of the Study

Due to the prevailing conditions in the business world and the use of many departments of the Iraqi shareholding companies to polish the financial statements in an effort to improve the financial situation in terms of profitability or financial position to achieve self-objectives, these departments resort to the use of profit management behavior, although they provide short-term benefits to the enterprise. However, they may lead to serious long-term problems, which are reflected in poor operational and economic efficiency of the enterprise. Long-term. Hence, this study seeks to determine the nature of these methods and to indicate the extent to which the external auditors in Iraq have initiated the necessary audit procedures to limit these methods so as to achieve the credibility of the published financial statements (Wild, 2003). Based on the above, the problem of the study is to find answers to the following questions:

1. What are the extent of the Iraqi companies' practices to earnings management and the realization of the consequences?

2. Do creative accounting methods and procedures affect the reliability of financial statements issued by these companies?

3. Do the external auditors of the Iraqi corporates, during the audit of the data issued by those companies, apply the procedures and tests necessary to detect and limit the effects of creative accounting methods on such data?

The Significance of the Study

The importance of the study stems from the importance of the issue of creative accounting as it represents an important problem, especially in light of the management of companies using their methods to show the result of activity and financial position that achieves its short and long term goals, even at the expense of other categories. This study serves several categories such as investors, analysts, auditors and other categories of society. The study focused on the adoption of the method of analysis of financial reports issued by the sample companies, and the auditors' reports on these companies for three economic sectors (industrial, agricultural and commercial) following Miller Modal to measure and reveal the extent of the practice of Iraqi companies. Creative accounting methods when preparing their financial statements. Some statistical methods that best fit the modal of the analysis, such as central tendency, dispersion measures, standard deviation, and variant coefficient were used to compare two sets of data in sense that the measures of central tendency are not sufficient, the two arithmetic mean groups may have the same but differ in the degree of dispersion. …

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