Abstract
Short-term earnings are managed in most, if not all, companies. The management of short-term earnings is vulnerable to misinterpretation, manipulation or deliberate deception even if these misleading accounting practices are prohibited by accounting regulations. Hence, the problem with managing short-term earnings is that it becomes an ethical practice, regardless of who is or may be affected by the practice or the information that flows from it. As a result of the publicity received by Enron and WorldCom on financial failures and fraud, and the subsequent legislation, the Sarbanes-Oxley Act in 2002, students are expected to understand the morality issues of earnings-management practices. Therefore, the ethics of earnings-management practices affects the accounting educator. Accounting students and business managers were surveyed and the findings indicated that there is no significant difference between gender regarding the ethicality of twenty earning management practices. The results, however, show that there is a significant difference between the perceptions of business managers and students regarding the morality of earnings-management practices. However, no significant differences were found between genders.
Highlights
Earnings-management can be defined as any action on the part of management which affects reported net income and which provides no true economic advantage to the organisation, even if it may be detrimental to the company in the long run (Merchant & Rockness, 1994:79).A survey was conducted of the readership of the Harvard Business Review on the acceptability of practices in earning management (Harvard Business Review, 1989). Bruns and Merchant (1990) characterised the results as ‘frightening’
The authors observed that where a practice is not explicitly prohibited or where there is a slight deviation from the rules, it seems that it becomes an ethical practice regardless of who might be affected by the practice or the information that flows from it
With respect to group differences, the results show that for most of the short-term earningsmanagement practices the business managers tended to view the practices less favourably than the students did
Summary
Earnings-management can be defined as any action on the part of management which affects reported net income and which provides no true economic advantage to the organisation, even if it may be detrimental to the company in the long run (Merchant & Rockness, 1994:79).A survey was conducted of the readership of the Harvard Business Review on the acceptability of practices in earning management (Harvard Business Review, 1989). Bruns and Merchant (1990) characterised the results as ‘frightening’. Earnings-management can be defined as any action on the part of management which affects reported net income and which provides no true economic advantage to the organisation, even if it may be detrimental to the company in the long run (Merchant & Rockness, 1994:79). A survey was conducted of the readership of the Harvard Business Review on the acceptability of practices in earning management (Harvard Business Review, 1989). Bruns and Merchant (1990) agree that anyone who uses information on short-term earnings is vulnerable to misinterpretation, manipulation, or deliberate deception as some of the earnings-management practices can be immoral and unethical. For its 2002 Annual Meeting, the American Accounting Association chose the Quality of Earnings Project as its main theme and, in turn, academic journals have invited research articles focusing on earnings-management practices (Giacomino, Bellovary & Akers, 2006). Business ethics has revived academics’ and accounting practitioners’ interest in ethics and earningsmanagement practices but it supports the view that there is a lack of ethics and ethical behaviour on the part of businesses and management (Karassavidou & Glaveli, 2006)
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