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Accounts manipulation has been the subject of research, discussion and even controversy in several countries including the USA, Canada, the U.K., Australia, Finland and France. The objective of this paper is to provide a comprehensive review of the literature and propose a conceptual framework for accounts manipulation. This framework is based on the possibility of wealth transfer between the different stake‐holders, and in practice, the target of the manipulation appears generally to be the earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window‐dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques have common elements, but there are also important differences between them.

Prior studies generally focus on income smoothing through discretionary accruals and document that managers have incentives to smooth earnings due to various reasons. This paper aims to focus on income smoothing through research and development (R&D) management and examine whether and how income smoothing through R&D management affects credit rating agencies’ perception of firm risk.

The authors use financial statement data from the CRSP/Compustat Merged data set universe for the period from 1992 to 2019 after excluding financial and utility industries. The authors follow the model for credit ratings used in previous literature to test the hypothesis. Specifically, the authors use an ordered probit model to express credit ratings as a function of income smoothing attributes.

The authors find that R&D-based income smoothing improves a firm’s credit rating. However, the positive effect of R&D-based income smoothing on credit ratings is less than that of accruals-based income smoothing. This study also shows that the positive effect of R&D-based income smoothing is more pronounced for firms less subject to opportunistic incentives, further strengthening the notion that managers smooth earnings through R&D management to provide more informative earnings.

This study contributes to the income smoothing literature in several ways. First, the authors contribute to the research by showing that managers’ income smoothing activity through R&D management positively affects firms’ credit rating. Second, the authors also document the relative benefits of the two different income smoothing techniques in terms of improving credit agencies’ perception of firms’ creditworthiness.

This paper aims to examine whether African banks audited by a Big 4 auditor use loan loss provisions (LLPs) for earnings management purposes before, during and after the global financial crisis. It focuses on income smoothing as a type of earnings management.

The study analyzed banks in 21 African countries from 2002 to 2014. The estimation techniques used are the fixed effect regression technique, descriptive statistic and Pearson correlation statistic. The model used in the study expresses LLPs as a function of its discretionary and non-discretionary determinants.

African banks audited by Big 4 auditors use LLPs to smooth income and the incentive to smooth income is greater during an economic downturn or recession. Also, African banks audited by a Big 4 auditor use income smoothing to lower high earnings during the financial crisis and in the pre-financial crisis period but not in the post-financial crisis period.

The literature shows that the presence of Big 4 auditors improves earnings quality. The direct impact of Big 4 auditors on earnings management in African banks has received little attention in the literature, and the impact of audit quality on bank earnings smoothing particularly in Africa is yet to be known.

This paper empirically investigates whether trade openness (TO) in Brazil, Russia, India, China and South Africa (BRICS) countries affects how banks might employ loan loss provisions (LLPs) to smooth out their earnings and how adopting the International Financial Reporting Standards (IFRS) can mitigate it.

The analysis includes 78 commercial banks from five BRICS nations and spans 2014 through 2020. To test these hypotheses, the authors utilized a fixed-effect and two-step system panel generalized methods of moments (GMM) estimator.

TO positively affects income smoothing (earnings management) across BRICS commercial banks. The effect is clearer in banks that make financial reports under the IFRS. Path analysis reveals that the effect of TO is driven by nonperforming loans (NPLs). Additionally, the IFRS restricts earnings management in the BRICS banking sector when a better institutional environment is present. The authors found that accounting rules (IFRS) and enforcement (better institutional settings) interact to enhance earnings’ quality.

The relationship between TO and bank earnings management practices is important for understanding the complex interplay between trade and finance and ensuring financial stability, investor confidence and regulatory compliance. This study recommends better regulations and governance mechanisms for financial reports in emerging nations like BRICS. Additionally, macro-prudential regulators and banking supervisors should work closely to ensure transparent TO decisions with improved discipline, institutional quality and regulatory support to enhance bank stability.

The study finds evidence of bank income smoothing in the BRICS and introduces TO as a determinant. It also identifies the evolving role of IFRS in the presence of higher institutional quality and TO, thereby expanding the financial reporting literature.

Income smoothing is exercised by the management for numerous reasons. Growth opportunities available to a firm are a very important reason but an undermined area for income smoothing by the management. This paper aims to review the income smoothing practices in corporate enterprises in India with respect to growth pattern of a firm as measured by investment opportunity set (IOS) defined in Fudenberg and Tirole’s (1995) model. In India, the main corporate ownership model is promoter dominated shareholders model. This makes the study unique highlighting the role of board for income smoothing. The study contributes by extending this model to earnings per share definition with IOS by a firm. The study also investigates the level of income smoothing and its impact on the informativeness of earnings in regard to IOS.

The enterprises have been chosen on the basis of their performance in terms of profit generation [profit after tax (PAT) performance] for the year 2007-2008 as per Economic Times October 2007 Survey in a private sector. The period to be covered is from 2003-2004 to 2007-2008. 2007-2008 has been a year of global recession which is an indicative reason for income smoothing by the corporate. DeAngelo model has been used for calculating discretionary accruals and detecting income smoothing. Fudenberg and Tirole’s (1995) model has been specifically used in studying the relationship between IOS and income smoothing. Specifically, we use three variables to construct an index of the IOS of each firm, market-to-book assets, market-to-book equity and the earnings price ratio.

An examination of the units shows that there is smoothing behaviour exercised by them. Analytical results of anticipatory smoothing and the IOS propose that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance. More explicitly, the extent of smoothing is expected to be negatively related to the level of IOS in periods of low current/high future performance and positively related to the level of IOS in periods of high current/low future performance. The empirical results confirmed our predictions.

The sampling requirements were met by 12 units only of top 25 units, taken for the study. So, the present study was confined to only 12 profit-making corporate enterprises in the private sector in India, leaving all other enterprises. Though these companies constitute a significant size of Bombay Stock Exchange’s market capitalization for completeness of data, still the size can be extended for further study. The present study has not considered public sector units and closely held companies. The scope of the units can be extended to other units in diverse sectors with different size and scale of operations. It would further verify the present discussion and also provide future enlightenment on the issue of income smoothing. The magnitude of discretionary accruals has been analysed in regard to potential earnings management. But, discretionary accruals are not directly available. They are calculated as a proxy using a model. Estimating discretionary accruals is still a tedious task.

The results clearly indicate that growth opportunities available to a firm are potential indicative of a firm’s income smoothing behaviour. The findings of this study are important to standard setters and regulators, as it highlights the need for an effective regulation for detecting income smoothing. There is a strong need to have well-defined policies and regulatory mechanism with respect to prevent and detect income manipulation practices at an early stage. Standard-setting bodies can consider the attributes of assets and liabilities and changes in them also with the fundamental process of measurement of income. In short, the evidence argues for a revenue/expense and asset/liability view of earnings, rather than the cash-flow view of earnings. The findings of this study are important to policymakers and other stakeholders, as it highlights the need for an effective board in discharging their role qualitatively, rather than quantitatively.

It brings out the importance of fair accounting for shareholders.

It is an original paper which highlights the income smoothing behaviour in Indian corporate enterprises in terms of growth opportunities available to them.

This paper seeks to investigate whether executive wealth sensitivity to stock price fluctuations serves as an incentive for earnings management.

Using a sample of 475 chief executive officers (CEOs) from 410 randomly selected Standard and Poor's (S&P) 1500 firms, the relation between executive stock‐based compensation, corporate governance, and earnings management is empirically examined.

CEO wealth sensitivity is positively associated with abnormal accrual usage and the relation is consistent with income‐smoothing. Also find that governance does not significantly influence the association between CEO stock‐based wealth sensitivity and earnings smoothing.

This study has several limitations. First, it is assumed that the accruals models used provide accurate measures of abnormal accruals. Several recent studies question the reliability of these models. Second, the wealth sensitivity measures in this paper are based on Black Scholes option pricing. A number of the assumptions underlying Black Scholes do not hold for executive options. Finally, governance factors that influence the examined relations may not be effectively captured by the measures in this paper.

The findings have implications for compensation design. Unintended consequences of high CEO exposure to firm‐specific risk may not be effectively mitigated by governance. These results also have potential policy implications. In the wake of recent accounting scandals regulators tightened governance standards for corporate. The findings suggest that reliance on these standards as deterrents to earnings management may not be warranted.

The study contributes to both the earnings management and corporate governance literatures. The results of this study suggest that CEO stock‐based wealth sensitivity is an earnings management incentive.

This study empirically tests the use of loan loss provisions (LLPs) for earnings and capital smoothing when emphasis is laid on banks' riskiness and adoption of the International Financial Reporting Standards (IFRSs) in Nigeria.

Annual bank-level data are hand-extracted between 2007 and 2017 from annual reports of a sample 16 deposit money banks (DMBs), and analysed using appropriate panel regression models subsequent to a number of diagnostic tests including heteroscedasticity, autocorrelation and cross-sectional dependence. The use of both reported LLPs (TLLP) and discretionary LLPs (DLLP) for earnings and capital management is tested to advance the practice in the literature.

Generally, the study finds that Nigerian DMBs manage capital via LLPs, while mixed results are obtained for earnings smoothing. However, during IFRS, Nigerian DMBs' management of capital is identifiable with TLLP, while smoothing of earnings is peculiar to DLLP. Additionally, evidence of the improvement in loan loss reporting quality expected during IFRS for riskier Nigerian DMBs, could not be attained. This is corroborated by the study's findings of the use of both TLLP and DLLP for earnings and capital management during IFRS by DMBs in solvency crisis against the only use of TLLP to manage capital found for the entire period.

The evidential capital and earnings lopsidedness may subject Nigerian DMBs' going-concern to a lot of questions.

The study sets a foremost record in the empirical test of managerial opportunistic behaviour embedded in earnings and capital concurrently while accounting for loan losses by all categories of Nigerian DMBs in terms of riskiness, following accounting regime change.

The purpose of this paper is to examine empirically whether corporate governance mechanisms have an effect on income‐smoothing behavior in the People's Republic of China.

The sample comprises 1,358 companies listed in the Shanghai Stock Exchange and the Shenzhen Stock Market during the period 1999 to 2006. By comparing the variability of income to the variability of sales, an income smoother can be identified if income is less variable than sales.

The authors' empirical results show that income smoothing is more severe when the state is the controlling shareholder of the Chinese listed firm. Firms with more independent directors are more likely to engage in income smoothing. The governance mechanisms such as board of directors, supervisory board, audit committee, external auditors, and shareholders' participation are not effective in curtailing income smoothing in China.

For Chinese firms and especially government‐linked enterprises, the way in which they present themselves may be significant, since the image they present to potential strategic partners may be marred by suspicions of income smoothing.

The paper presents the current development of China's corporate governance system and indicates that agency conflicts between controlling shareholders and minority investors account for a significant portion of earnings management in China.

The purpose of this paper is to investigate if Jordanian banks using provision accounts as a technique to smooth income, manage capital ratio, signal future earning and test other determinants affecting provision accounts.

The study was conducted on all Jordanian listed banks, and it covers the period 2005-2014. Different models are applied to test the dependent variables (loan loss provision [LLP] accounts) and its effects on different explanatory variables by using several statistical techniques (e.g. multiple regression).

The results show that there is no conclusive evidence supports that Jordanian banks used provision to smooth income, manage capital ratio or engage in pro-cyclical behavior. However, a positive and significant effect between one year ahead change in earnings and loan loss allowance, indicating that banks may use provisions to signal future positive changes in earnings. In addition, the results show that loan-to-asset ratio and beginning loan loss allowance have positive effect on provision accounts.

The results of this study are useful in assisting the regulators (e.g. US Securities and Exchange Commission, central bank) in efforts toward improving the quality of the reported financial reporting in the banking industry and focus on LLP management motivations. This study gives shareholders further insight which enables them to better understand the actions of managers and thus increase their control over their investments. Additionally, auditors should be aware of different incentives for using LLP as a tool of earnings management to be able to detect eventual manipulation of accounting earnings.

Banking in is one of the most stringently regulated of sectors and, furthermore, has a major impact on other sectors and on economic growth in general. In view of such importance, this study focuses on the banking industry and contributes to the literature in several ways. First, it represents the first known study, to the best of author knowledge, which examines if Jordanian banks use LLP accounts as a tool to smooth income and/or to manage capital. Second, unlike most existing research, which usually studies one aspect of LLP, this study focuses on four main motivations influencing provision accounts in the banks of Jordan. Third, additional tests were carried out to check the robustness of results, for example, sensitivity analysis is used to examine the change of findings by repeating of tests after using different proxies. Fourth, as a difference from other studies, this study investigates the effects of global financial crisis of 2008 on income smoothing behavior of Jordanian banking sector. Fifth, this paper provides a timely contribution to the continuous debate of the effect of LLP on earnings management in a poorly exploited setting, emerging market context.

The authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the recent regulatory changes following the implementation of Chinese Basel III on such behavior.

The authors use a unique set of hand-collected data on bank capital combined with financial data downloaded from the China Stock Market and Accounting Research (CSMAR) database. Multivariate regression models are used to test our hypotheses.

The authors find that while there is no evidence to suggest capital management practice before the Chinese Basel III, the implementation of the new regulations induced listed banks to manage tier-1 capital via LLPs. The authors also find strong support that Chinese banks engage in income smoothing via LLPs management, and there is no change in such tendency following the issuance of Chinese Basel III. Lastly, the authors do not find support for the signaling behavior by Chinese banks using LLPs.

The authors’ evidence suggests that elevated tier-1 capital and provisioning requirements may induce capital management by banks, which indicates a potential unintended effect brought forth by the new Basel regulations.

To the best of authors’ knowledge, this study is the first to examine Chinese banks' behavior relating to LLPs in terms of capital management, income smoothing and signaling. In particular, the authors use a sample containing a large number of Chinese commercial banks – previously a major data issue in other studies.