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Article
Publication date: 14 October 2019

Therèse de Groot and Arco van de Ven

The purpose of this paper is to use qualitative research findings to describe and analyze the use of a new teaching approach for a better understanding of earnings management.

Abstract

Purpose

The purpose of this paper is to use qualitative research findings to describe and analyze the use of a new teaching approach for a better understanding of earnings management.

Design/methodology/approach

Three classroom workshop designs with finance professionals were performed as an experiment to discuss the underlying assumptions of mainstream earnings management research. The outcome of the experiment is analyzed and serves as a basis for reflection on the new teaching approach.

Findings

The teaching experiment revealed the value to participants in discussing the complexity of the accounting choice process. The workshops provided insights into the wide range of accounting choices that finance professionals are confronted with and into the differences in perception of the participants relating to the accounting choices to be made. These insights contradict the assumptions of a “neutral reporting process” and solely “purposeful interventions” used in mainstream earnings management research. Analyzing the elements of the different workshop settings in relation to the outcome of the discussion identified strengths and weaknesses of each setting and generated ideas for further development of the teaching approach.

Practical implications

This research note adds to the understanding on how qualitative research can be used in teaching and shows that it is also coherent with using teaching as a site for qualitative research.

Originality/value

The discussions relating to the limitations of mainstream accounting research are predominantly of a general nature. This research note takes these discussions into consideration by exploring the subject of earnings management, offering an alternative teaching approach.

Details

Qualitative Research in Accounting & Management, vol. 16 no. 4
Type: Research Article
ISSN: 1176-6093

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Article
Publication date: 30 August 2019

Neirilaine Silva de Almeida and Sirlei Lemes

The purpose of this paper is to examine associations between observable characteristics of Chief Financial Officer (CFO) and accounting choices.

Abstract

Purpose

The purpose of this paper is to examine associations between observable characteristics of Chief Financial Officer (CFO) and accounting choices.

Design/methodology/approach

The dependent variable is an index that measures a manager's propensity to choose accounting policies that increase earnings and/or operating cash flow (OCF). The index consists of ten accounting policies collected from the financial statements of 175 entities located in Germany, Brazil and the UK (2010-2016).

Findings

The results demonstrate that the observable characteristics of CFOs partially explain their accounting choices. Specifically, entities that tend to adopt accounting policies that increase earnings and/or OCF have CFOs that lack graduate education or greater internationalization.

Practical implications

CFOs can use the flexibility inherent in accounting choices to adopt accounting policies that increase earnings and/or OCF in ways that fit their personal characteristics. Therefore, it may be beneficial to reflect on the potential benefits of reducing the use of certain accounting policies that affect financial statements.

Originality/value

This paper contributes to the literature by identifying which CFOs characteristics determine the choices of a set of accounting policies that affect companies’ earnings and/or OCF in countries with different economic, social and cultural realities.

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Article
Publication date: 31 December 2007

Colin. R. Dey, John R. Grinyer, C.Donald Sinclair and Hanaa El‐Habashy

In recent years, Egypt has been developing rapidly from a socialist to a fully developed market‐based economy. One may expect that this economic transition towards a more…

Abstract

In recent years, Egypt has been developing rapidly from a socialist to a fully developed market‐based economy. One may expect that this economic transition towards a more capitalist orientation will influence the country’s cultural and socio‐economic environment, and consequently the behaviour of its corporate managers. The increasing separation of ownership and control of capital could be expected to increase agency problems associated with managerial decisions. In these circumstances, it should be interesting to identify whether ‘positive accounting’ hypotheses would apply in such an environment. Therefore, this paper examines the relevance to financial reporting in Egypt of some established positive accounting theory hypotheses in addition to a new hypothesis related to taxation. The evidence of the study is consistent with the validity of the conventional ‘bonus’ and ‘debt’ hypotheses and the new ‘taxation’ hypothesis. These conclusions are also consistent with recent empirical studies of cultural and socio‐economic change in Egypt.

Details

Journal of Applied Accounting Research, vol. 8 no. 3
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 1 October 2010

J. Rossouw

Although the intention of the International Accounting Standards Board (IASB) is not to permit choices in the accounting treatment of similar transactions and events…

Abstract

Although the intention of the International Accounting Standards Board (IASB) is not to permit choices in the accounting treatment of similar transactions and events, International Financial Reporting Standards (IFRSs) still contain various choices of accounting treatment. Different accounting alternatives for similar transactions limit the comparability of financial information. Certain accounting policies result in differences in recognition, measurement and disclosures. This article identifies 16 such accounting policy choices and presents the descriptive empirical results on which accounting policies were in fact chosen by a sample of 157 South African listed companies, in cases where IFRSs allow a choice between alternative accounting policies. Disclosure of accounting policies is necessary for the users of financial statements to enable them to compare the financial statements of various entities in making economic decisions. The research also found a lack of disclosures relating to chosen accounting policies in limited cases.

Details

Meditari Accountancy Research, vol. 18 no. 2
Type: Research Article
ISSN: 1022-2529

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Article
Publication date: 31 December 2007

Rhoda Brown and Mark Whittington

The choice of accounting policies by a company has implications for the market’s understanding of corporate performance. Whilst the critical areas of choice may change…

Abstract

The choice of accounting policies by a company has implications for the market’s understanding of corporate performance. Whilst the critical areas of choice may change over time with new developments and changes in standards, the underlying issue remains relevant. This paper examines the effect of accounting techniques upon the relationship between accounting variables and UK share prices.

Details

Journal of Applied Accounting Research, vol. 8 no. 3
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 5 July 2011

Nelson M. Waweru, Ponsian Prot Ntui and Musa Mangena

The purpose of this paper is to examine the factors that determine the choice of multiple accounting methods in Tanzania. The study investigates managers' decisions to…

Abstract

Purpose

The purpose of this paper is to examine the factors that determine the choice of multiple accounting methods in Tanzania. The study investigates managers' decisions to choose accounting methods in a positive accounting theory perspective using panel data covering 60 years from 15 companies listed on the Dar es Salaam Stock Exchange.

Design/methodology/approach

Data were extracted from the companies' annual reports. Possible determinants of the choice of accounting methods are identified based on the positive accounting theory, including firm size, leverage, internal financing, proportion of non‐executive directors, ownership dilution, and labour force intensity. The study then utilises multiple regression analysis to determine the significant factors influencing the manager's choice of accounting methods.

Findings

The results show that the significant factors are company size, internal financing, proportion of non‐executive directors, and labour force. Contrary to the outcome of prior studies, the authors found that company size and internal financing are positively related with income strategy. The study proves statistically that there is a strong association between choice of accounting methods and income strategy.

Originality/value

The paper makes several contributions to the body of knowledge. First, in the Tanzanian context, it determines the factors which affect choice of accounting methods. Second, the study identifies the proportion of non‐executive directors as a new factor impinging on the choice of accounting policies. Finally, this study shows for the first time that the use of ratio of income‐increasing accounting policies to total number of accounting policies can be used as a dependent variable.

Details

Journal of Accounting in Emerging Economies, vol. 1 no. 2
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 6 November 2017

Muhammad Jahangir Ali and Kamran Ahmed

The purpose of this paper is to examine the determinants of accounting policy choices under International Accounting Standards (IASs) of listed firms in South Asia.

Abstract

Purpose

The purpose of this paper is to examine the determinants of accounting policy choices under International Accounting Standards (IASs) of listed firms in South Asia.

Design/methodology/approach

We selected three IASs-based accounting policy choices from 369 listed companies in India, Pakistan and Bangladesh for the financial year 2007-2008.

Findings

Our results show that firm size, investment opportunity set, leverage and ownership by the general public are significant determinants of accounting policy choice in South Asian countries. However, we do not find a significant relationship between firms’ accounting policy choices and profitability, assets-in-place and taxes.

Practical implications

Our results suggest that as some flexibility exists in IASB’s accounting standards, this may allow managers to use income-increasing/decreasing methods. There is scope for regulators and standards setters to reduce the alternative methods which are likely improve firms’ reporting quality.

Originality/value

Our study contributes to the understanding as to what determines managers’ choice of a particular accounting method allowed in IAS.

Details

Accounting Research Journal, vol. 30 no. 4
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 November 2004

Charlotte J. Wright and Liming Guan

Using a matching approach and multivariate logit analysis we determine that management of firms involved in MBOs more frequently chose income increasing accounting

Abstract

Using a matching approach and multivariate logit analysis we determine that management of firms involved in MBOs more frequently chose income increasing accounting policies than did a matched sample of non‐MBO firms. The results provide support for the managerial economic incentives hypothesis as a motivation for accounting policy choices. The results of the study are consistent with a number of earlier studies such as Groff and Wright (1989), Hagerman and Zmijewski (1979) and Zmijewski and Hagerman (1981) that also find support for the managerial economic incentives hypothesis for accounting choices. DeAngelo (1986), Perry and Williams (1994) and Wu (1997) find evidence supporting the hypothesis that, in order to reduce the cost of acquiring shares from current stockholders, managers seeking to take firms private make income decreasing discretionary accruals in the period immediately prior to the MBO. In testing this theory DeAngelo (1986), Perry and Williams (1994) and Wu (1997) focus on the overall effect of a pool of business decisions and accruals made in the year immediately prior to the MBO. We theorize that managements’ self‐serving behavior begins far in advance of the actual MBO. The final terms of the MBO are the culmination of numerous actions and choices by management over a period longer than one year. In testing our hypotheses we focus on three specific accounting policy choices made over a period of three years leading up to an MBO and find significant evidence of self‐serving behavior through the use of income increasing accounting policy choices.

Details

Managerial Finance, vol. 30 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 10 April 2017

Michael J. Turner and Leonard V. Coote

This paper aims to introduce and illustrate how discrete choice experiments (DCEs) can be used by accounting researchers and present an agenda of accounting-related…

Abstract

Purpose

This paper aims to introduce and illustrate how discrete choice experiments (DCEs) can be used by accounting researchers and present an agenda of accounting-related research topics that might usefully benefit from the adoption of DCEs.

Design/methodology/approach

Each major phase involved in conducting a DCE is illustrated using a capital budgeting case study. The research agenda is based on a review of experimental research in financial accounting, management accounting and auditing.

Findings

DCEs can overcome some of the problems associated with asking decision-makers to rank or rate alternatives. Instead, they ask decision-makers to choose an alternative from a set. DCEs arguably better reflect the realities of real-world decision-making because decision-makers need to make trade-offs between all of the alternatives relevant to a decision. An important advantage that DCEs offer is their ability to calculate willingness-to-pay estimates, which can enable the valuation of non-market goods. Several streams of experimental accounting research would appear well-suited to investigation with DCEs.

Research limitations/implications

While every effort has been made to ensure that this illustration is as generic to as the many potential studies as possible, it may be that researchers seeking to utilise a DCE need to refer to additional literary sources. This study, however, should serve as a useful starting point.

Practical implications

Accounting researchers are expected to benefit from reading this article by being: made aware of the DCE method and its advantages; shown how to conduct a DCE; and provided with an agenda of accounting-related research topics that might usefully benefit from application of the DCE methodology.

Originality/value

It is the authors’ understanding that this is the first article directed to accounting academics regarding the conduct of DCEs for accounting research. It is hoped that this study can provide a useful platform for accounting academics to launch further research adopting DCEs.

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Article
Publication date: 1 March 1995

Nicholas C. Mangos and Neil R. Lewis

The lack of explicit consideration in positive accounting studiesof managers and their social environment leads to a failure to analysethe social factors that influence…

Abstract

The lack of explicit consideration in positive accounting studies of managers and their social environment leads to a failure to analyse the social factors that influence managers′ accounting choices. Argues that based on a socio‐economic paradigm, consideration should be given to a socio‐economic consideration of the relationship between corporate social reporting and managers′ selection of accounting practices. Criticizes a purely economic approach to understanding and analysing motives managers may have in choosing accounting policy. Social responsibility reporting is suggested as a corporate social response to influences on managers and their choice of accounting policy. In analysing prior research which has empirically tested the relationship between social responsibility reporting and reported financial performance, a potential relationship between reported financial performance and accounting policy choice is identified and developed. This contributes to socio‐economic research by expanding positive accounting theory to include explicit social variables.

Details

Accounting, Auditing & Accountability Journal, vol. 8 no. 1
Type: Research Article
ISSN: 0951-3574

Keywords

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