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The chapter examines the perceptions of a range of stakeholders regarding the ethics of earnings management (EM) by Libyan commercial banks. EM ethics research has largely been based on a questionnaire developed by Bruns and Merchant (1990). This chapter addresses the issue in two different ways. First, it directly examines the interviewees’ perceptions on whether EM is ethical or not. Second, stakeholders’ perceptions are surveyed using a set of questions that consider, for example, the effect of EM on others’ interests and whether EM is ethical if applied within General Accepted Accounting Principles (GAAP) and the law. A total of 28 semi-structured interviews were carried out with stakeholders comprising: preparers of financial statements, users, regulators, and academics. A questionnaire survey of stakeholders which yielded 102 responses (response rate 53%) was also carried out. Interview findings indicated that 50% of the interviewees have the view that EM is ethical. Questionnaire results, on the other hand, revealed that EM is agreed, on balance, to be perceived as unethical. However, if applied within GAAP and the legal framework it is perceived, on balance, to be ethical. The chapter provides insights into stakeholders’ perceptions of EM ethics. The findings are of particular relevance to the users, and specifically, the external auditor as well as current and potential investors. EM practices, according to the literature, degrade financial reporting quality and may affect economic decisions. Auditors should be aware that EM may be regarded as an ethical practice and therefore more scrutiny might be required. In terms of accountability a manager should be held accountable not only to shareholders but also to society as a whole.

The failure of an entity is not necessarily an accounting and financial problem. It may include factors such as earnings management and personal values. The problem with managing earnings is it becomes an ethical practice, regardless of who is or may be affected by the practice or the information that flows from it. Therefore, the purpose of this paper is to survey students and business managers to measure their perceptions about the morality of earnings management actions. Accounting educators should aim to assist students to understand how they may react once confronted with an ethical conflict when in practice.

This paper conducts a survey of undergraduate accounting students and business managers (MBA students) at a reputed international university. Undergraduate students, majoring in accounting and business managers were surveyed to measure their perception of specific earnings‐management actions. The questionnaire includes 20 items relating to ten earnings‐management practices. The respondents were required to rate each question on a five‐point scale ranging from 1, an ethical practice, to 5, totally unethical. The frequency distributions and the mean values were calculated, using a 0.05 difference in the mean values as significant. This paper uses a similar questionnaire as Giacomino and Akers. This questionnaire was originally used by Bruns and Merchant.

The evidence in this paper shows that there is no significant difference between the perceptions of business managers and students regarding the morality of earnings management. Furthermore, the survey indicated that more courses must be offered at universities to address such aspects of ethics and earnings management.

This paper indicates that business students need more exposure to and understanding of earnings management. There should be regular reports of fraudulent practices as a result of earnings management by the media and academic journals and greater emphasis should be placed in the accounting curricula on earnings management practices. However, difficult, it should be integrated into business courses or a separate business ethics course or an accounting course taught by accounting and ethics academia. Furthermore, Giacomino and Akers suggest that the “real‐world” aspects of earnings management practices be enhanced and that experienced business professionals become an integral part of accounting courses. By using experienced professionals during lectures and making discussions of earning more realistic, there is an expectation that the differences between students and business managers may be reduced.

Participative budgeting is one of the most intensively researched budgeting variables in management accounting. Research has stalled, however. The purpose of this paper is to stimulate further research by providing an overview of antecedents of participative budgeting and suggesting ways to build upon extant research.

We assess 22 studies published prior to 2011 that offer statistical insights into why organizations use participative budgeting by theorizing and modeling it as a dependent variable.

This work answers two research questions regarding why organizations use participative budgeting: (a) Which antecedents of participative budgeting have been analyzed so far? (b) Which causal-model forms are used in extant research regarding the antecedents of participative budgeting?

This paper provides a detailed overview of empirical studies and respective findings aiming to explain why organizations use participative budgeting. Many prior studies have measured the association between contextual antecedents and participative budgeting. However, from a theoretical perspective, objectives of employees and supervisors are often used to explain the relation. Based on our literature review, we propose that all objectives identified so far intervene in the relationship between context and use of participative budgeting and also further detail these objectives. Consequently, our review analyzes the status quo of research on why organizations use participative budgeting and adds additional suggestions of underlying causal processes that can be tested in future studies.

The purpose of the study is to evaluate whether the selection of accounting method used to value inventory increases or decreases the probability of a retail firm's ability to remain in existence.

This study employs a binary logistic regression model to predict group membership and the probability of failure. The study utilizes an unbalanced sample of US publicly traded failed and functioning retail firms over a ten-year period.

The results clearly support the conclusion that there is a difference in the probability of retail firm failure with respect to the accounting method used to value inventory. Merchants using a cost-based valuation method were 2.3 times more likely to fail than firms using a price-based method. The results also affirm existing bankruptcy literature by finding that profitability, liquidity, leverage, capital investment and cash flow are factors in retail failures.

The results suggest that traditional merchants cannot simply blame e-commerce or shifts in demographics for the retail Apocalypse; good management and proper valuation of stock still matter.

This study is the first to look at firm failure in the retail sector after the great recession of 2008, in an era known as the “retail Apocalypse.” In addition, this study differs from other firm failure literature by incorporating cost- and price-based inventory valuation methods as a variable in firm failure.

The purpose of this study is to investigate the effects of Chinese industry accountants' perceptions of the ethical context in their organization and Machiavellianism on attitudes toward earnings management.

The research is based on a survey of professional accountants employed by companies in Mainland China.

The results indicate that perceptions of a strong organizational emphasis on serving the public interest (benevolent/cosmopolitan climate) significantly reduced professional accountants' willingness to condone accounting earnings management. Professionally certified accountants also judged accounting earnings management more harshly. Consistent with our expectations, high Machiavellians judged earnings management more leniently, although this effect was only marginally significant in the case of accounting earnings management. In contrast to prior studies of earnings management in the USA, the participants judged accounting earnings management more leniently, but judged operating earnings management more harshly.

This is the first study to document that an organizational emphasis on serving the public interest can restrain aggressive behavior among industry accountants. Claims of serving the public interest in accounting have traditionally focused on the role of the independent auditor in protecting the public from misleading financial reporting. The results indicate that appeals to public interest obligations also have resonance for professional accountants in industry. The fact that certified accountants were less tolerant of accounting earnings management also has important implications, demonstrating the practical value of professional certification programs and their associated training and socialization processes. The contrast observed between the ethical judgments of our Chinese participants and US accountants surveyed in previous studies raises important questions for further research.

Earnings management is a common term in the academic community and is likely understood by managers and professional investors, but how the large community of non-professional investors interprets this term is less clear. We examine non-professional investors’ attitudes toward earnings management and their resulting investing behaviors using a 2 × 2 mixed design. We manipulate investor role (prospective vs current) between participants and the method of earnings management within participants. We believe that different investment goals (prevention vs promotion) between current and prospective investors should lead to different investing behaviors. Consistent with our expectations, we find that current investors are more likely to maintain an equity than prospective investors are to invest in the same opportunity. Further, the consistent link between investors’ attitudes and actual investment behavior is only present for prospective investors. The prevention goal drives the current investors to maintain their investment, while the prospective investors remain more objective and focus on a goal of promotion. Importantly, prior research examining investor attitude toward earnings management has failed to link investors’ attitudes with actual investing decisions; our study attempts to fill this void by examining attitudes toward earnings management as well as subsequent investment behavior.

This study investigates whether exposure to a previous client’s earnings management behavior will impact experienced auditors’ judgments of the risk that a current client’s financial statements are materially misstated. Contrast theory predicts the context of previous information can have a priming effect on a current judgment scenario, where the information for the current judgment is contrasted with the previous information. Guided by contrast theory, we exposed auditors to either positive or negative client ethical earnings management behavior. We found the existence of contrast effects, with the positive (negative) context of the previous client resulting in auditors judging a higher (lower) likelihood of material misstatement in the current client’s financial statements. The results have implications for the effectiveness and efficiency of auditors’ judgments as well as provide insight into auditor training efforts.

Performance management involves budgeting, performance evaluation, and incentive compensation. This study describes a model that encompasses these three elements of performance management. To illustrate the model, survey data were examined using path analysis. The empirical evidence supports the model, and suggests several intervening variables that mediate the direct and indirect effects of budgeting, performance evaluation, and incentives on gaming behaviors and individual performance.

This study examines the relationship between a number of goal characteristics and the propensity of divisional managers to create budgetary slack. These goal characteristics are variables in goal clarity and goal difficulty. Managers also consider communication and reward systems – which are significant factors affecting the relationship between goal characteristics and propensity to create budget slack. The communication and reward systems are affected by influencing power of managers, required explanation of budget variance, budgetary feedback, peer relations, and relationship between superiors and subordinates. Using a sample of 108 hotel managers in Macau, the findings indicate that the clear communication and reward systems can result in goal clarity and can help to solve budgeting problems under difficult goal situations. The implications of these findings are discussed in relation to the design of budgeting systems. The need to integrate results and develop frameworks for future research is noted.