A Review of Management Earning and Real Transaction Manipulations Pre and Post IFRS Adoption in Nigeria

Obi Chineze Eunice

doi:10.11648/j.jim.20211001.12

Abstract

The paper examined the accounting quality in the financial statement, concerning earnings management practices by managers. The financial statements provide critical information that is useful to various groups, investors, standard setters, shareholders and government. The practices of various methods of earnings management are classified into accounting-based and market- based earnings management. The study classified the earnings management techniques in various ways that affect the quality of financial statements in the pre and post-IFRS adoption. The introduction of IFRS and its accompanying standards in the area of earnings management might imply real improvements in the financial statements about the quality. The earnings management techniques include the following: earnings management towards a target, earnings smoothing, discretionary accruals, accruals quality, and timely loss recognition as against other proxies of accounting quality. These are opportunities managers have to get quality Financial Statements that accomplish their intentions. The essence is that they use them to achieve their objectives either getting the desired level of profit or not recording losses for the business. The review results are that in the pre-IFRS the earnings management in use was the accrual-based earnings technique in which managers adjust assumptions and estimates the accounting system. In the post-IFRS, managers revert to real transactions based earnings management which involves the timing and structuring actual business activities to achieve a desired financial reporting result (for example, the timing of the sale of equipment that will result in a gain in a quarter in which extra earnings are needed, delaying major repairs, advertising, research, and development expenses write–off, and foregoing capital projects that positive net present value).

Highlights

The questions often asked when firms or companies fail/bankruptcy is how reliable is the financial statements issued by those firms/companies
Many studies agree to the fact that financial statements prepared under the IFRS and the Sarbanes Oxley Act had fewer earnings management using accruals, it managed through real transaction manipulations
The study reviewed the literature on earnings management and real transactions manipulations pre and post IFRS

Summary

Introduction

The questions often asked when firms or companies fail/bankruptcy is how reliable is the financial statements issued by those firms/companies These questions had been in the background, but the recent wave of companies’ failures/corporate accounting scandals had brought the issues into the limelight. Many other researchers had stated that many active players had joined by altering reported earnings or managing analysts' expectations [5] He had stated that prior research identified that firm' earnings management was for purposes of beating/meeting important earnings benchmark [7]. They stated that earnings management was causing an erosion in the quality of earnings and the quality of financial reporting, while found that restructuring charges an average 80 percent of net income before the charge [29] [13]. Some other researchers report the financial press stating the three reasons why managers manage earnings to include; to state profit that is at least above zero, sustain recent previous year performance and to meet analysts' expectations

Objectives

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Discussion

Conclusion