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The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator.

The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions.

The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India.

The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance.

The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.

The authors examine whether internal corporate governance mechanisms are effective in curbing cash flow manipulation through real activities, misclassification, and timing.

The sample comprises of firms from an emerging market, India with data for years 2004 through 2015. The authors use the methodology given in Roychowdhury (2006).

The authors find that corporate boards in India play an active role in curbing cash flow manipulation through real activities but fail to control cash flow manipulation through misclassification and timing.

The study suggests that corporate boards should pay more attention to the reported cash flow numbers. Regulators can reduce the opportunities available for cash flow misclassification by fixing relevant accounting and governance norms. Auditors can also help by critically focusing on the cash flow classifications presented by management.

This study, to the authors’ knowledge, is the first study that talks about the role of internal governance in a trade-off between different cash flow manipulation techniques.

The use of models for detecting earnings management in the academic literature, using accrual and real manipulation, is commonplace. The purpose of the current study is to compare the power of these models in a United Kingdom (UK) sample of 19,424 firm-year observations during the period 1991–2018. The authors include artificially-induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample. The authors use two alternative samples, one with no reversal of manipulation (sample 1) and one with reversal in the following year (sample 2).

The authors include artificially induced manipulation of revenues and expenses between zero and ten percent of total assets to random samples of 500 firm-year observations within the full sample.

The authors find that real earnings manipulation models have lower power than accrual earnings manipulation models, when manipulating discretionary expenses and revenues. Furthermore, the real earnings manipulation model to detect overproduction has high misspecification, resulting in artificially inflating the power of the model. The authors examine an alternative model to detect discretionary expense manipulation that generates higher power than the Roychowdhury (2006) model. Modified real manipulation models (Srivastava, 2019) are used as robustness and the authors find these to be more misspecified in some cases but less in others. The authors extend the analysis to a setting in which earnings management is known to occur, i.e. around benchmark-beating and find consistent evidence of accrual and some forms of real manipulation in this sample using all models examined.

This study contributes to the literature by providing evidence of misspecification of currently used models to detect real accounts manipulation.

Based on the findings, the authors recommend caution in interpreting any findings when using these models in future research.

The findings address the earnings management literature, guided by the agency theory.

In response to recent financial corporate scandals, this study aims to provide a helpful understanding for investors and accounting regulators on how firms manage their reported earnings. This leads to a better firm valuation by financial intermediaries and more useful accounting standards.

Estimating discretionary accruals and opportunistic special purpose entities and using a simultaneous equation approach, the aim is to check how managers trade off between such tools of earnings management. Based on real earnings manipulation and accruals management of earnings, the goal is to understand if such tools are used simultaneously or as substitute by firms.

After controlling for each cost determinants of such earnings management tool, firms use discretionary accruals and financial engineering with special purpose entities as substitutes. Additional analyses show that managers use such tools in a sequential process. Indeed, they first use special purpose entities during the course of the year but they manipulate discretionary accruals especially at the end of the year.

Despite sensitivity checks, measurement error in discretionary accruals proxy and opportunistic SPE estimation model remains an alternative explanation for the results. The sample size and the lack of accurate information about the size of special purpose entities may limit the extent of the findings.

It is a very useful tool for regulators when they plan to disclose new accounting standards. For investors, this study can help them in assessing the firm's value more accurately for investing and financing purposes.

Providing a new methodology and new models to detect pervasive earnings management strategies adopted by firms.

This study aims to investigate what are the capabilities and limits of external audit in detecting frauds in companies operating in the territory of the Republics: Serbia, Croatia, Macedonia and Bosnia and Herzegovina.

In total, 51 certified auditors from Serbia, Croatia, Macedonia and Bosnia and Herzegovina were surveyed to analyze what are the most frequent warning signals of the existence of the frauds auditors encounter during the verification of company’s financial statements.

The study indicated that the auditors of the Republic of Serbia more often encountered groundless overstatement of revenues compared with other countries, while regarding manipulative representation of inventories, the largest mean value and median are still among the auditors of the Republic of Serbia.

Based on the research results, it can be concluded that it is necessary to expand the legal obligation and power of external auditors when, in financial statement auditing, they come to clear findings that indicate fraud. Expansion of external auditors’ powers would reduce their current limitations and expand the domain of action.

Limitations in external auditors’ work prevent the processing of frauds. However, auditors’ analysis of financial statements and pointing to potential irregularities can be a good manner for the early detection and prevention of frauds in company’s operations.

The purpose of this paper is to investigate the effect of non-articulation on analyst earnings forecast quality. The authors look for evidence on the relationship between non-articulation and analyst earnings forecast properties: forecast inaccuracy, forecast dispersion and forecast bias.

The empirical tests are primarily based analyst earnings and cash flow forecasts covered by Institutional Broker Estimate System and financial statement information obtained from Compustat North America database.

The authors hypothesize and find that non-articulation is positively related to analyst forecast dispersion, forecast accuracy and forecast bias for one-year ahead of earnings. The effects of non-articulation on analyst earnings forecast inaccuracy and bias are neutralized when the analyst issues a cash flow forecast and when such forecast provides accurate information regarding the forecasted firm’s operating cash flow. On the other hand, cash flow forecast issuance alone does not mitigate the negative influence of non-articulation.

The sample selection procedure limits the generalizability of the findings.

The findings confirm CFA Institute and prior research asserting that non-articulation deteriorates the quality of earnings forecasts by financial statement users (more specifically, the financial analysts). The authors add to the literature by documenting that accurate cash flow forecasts help analysts mitigate the negative influence of non-articulation on earnings forecast quality.

It remains an empirical question whether non-articulation between the balance sheet and the statement of cash flows has an effect on financial statement users’ ability to assimilate financial information. The paper highlights the detrimental effect of non-articulation by documenting the relationship between the non-articulation and the quality of earnings expectation.

The purpose of this paper is to investigate the accuracy and informational quality of the cash from operations section of the cash flow statement.

This paper empirically tested the accuracy of the cash from operations reported by Canadian non-financial companies. The authors studied 262 companies at three different time periods providing 786 firm observations. For each observation, the balance sheet was used to confirm the figures reported in the statement of cash flows. In addition, the authors investigated management's disclosure of the particular working capital items.

The findings suggest that in recent years, companies are more likely to overstate their cash flow from operations, thereby presenting a better financial picture than is supported by the balance sheet accounts. This would suggest that the investing or financing section would be correspondingly understated. The presence of acquisitions reduces overstatements, which may be the result of more auditor presence.

This paper extends previous research from documented single, isolated instances of cash from operations being misstated to include a significant sample with more generalizable findings. The data are Canadian which may limit the generalizability to other countries. Future research should address the extent to which financial analysts rely on the reported cash from operations figure.

This preliminary study may have implications for financial analysts and others relying on the free cash flow figure.

This study expands on previous research which has taken place only on a case-by-case basis.

This study analyses the influence of the recent economic downturn on earnings management (EM), as well as the manipulation of real activities through cash flow from operations (CFO), with a sample of Spanish listed firms from 2004 to 2009.

We find evidence that the recent economic downturn has changed the patterns of firms’ EM. On the one hand, the crisis influence higher earnings generation as indebtedness increase. On the other hand, results support the hypothesis of an opportunistic behaviour of managers with higher firm market valuation. They have incentives to reduce earnings during the recession and push earnings for the recovery phase of the business cycle.

The study finds also a significant relationship between EM and abnormal CFO generation. The downturn influences positive abnormal CFO generation with indebtedness, as well as negative abnormal CFO generation with firm size and market valuation. It has no significant influence through abnormal accruals on abnormal CFO generation.

This study aims to investigate whether firms engage in earnings management behavior that attempts to manipulate Credit Rating Agency (CRA) perceptions during the Watchlist process and, if so, whether earnings management behavior appears to influence CRAs’ decisions.

To measure earnings management activities, this paper computes accrual-based and real earnings management measures in the year or in the quarter immediately before the Watchlist resolutions for all negative and positive Watchlist firms. To examine the association between the levels of earnings management and Watchlist resolutions, a logit model is applied to the data obtained from a sample of Watchlist firms.

Some evidence suggests that managers in Watchlist firms manage earnings in attempts to gain favorable Watchlist treatment. The findings are consistent with the Graham et al.’s (2005) survey evidence, which shows that one of the primary reasons for earnings management is to gain (or preserve) a desirable rating. In addition, CRAs appear to be misled by these attempts during the negative Watchlist process period.

The findings support SEC’s (2011, 2013a, 2013b) rules to reduce its reliance on credit ratings and the recent regulation reforms concerning the competition in the rating industry [the Credit Rating Agency Reform Act (2006)], and concerning conflicts of interest of CRAs among others [Dodd–Frank Wall Street Reform and Consumer Protection Act (2010)].

While many studies examine whether managers use discretionary accruals as a tool to manage earnings to obtain favorable ratings, those studies do not consider manipulation of real operating activities to manage earnings and CRA perceptions.

This study aims to examine the influence of related party transactions (RPTs), political connection (POLCON), board of directors (BOD), institutional ownership (IO), information asymmetry, audit quality (AQ), and leverage (LEV) on real earnings management (REM). The company used in this research is manufacturing companies listed on the Indonesian Stock Exchange from 2017 to 2019. The number of research samples is 192 firm years data. This study shows that RPTs, POLCON, IA, and LEV affect REM. In contrast, the BOD, IO, and AQ do not affect REM.