Abstract
Earnings management is one of the most challenging, debated and controversial topics in finance and financial management. Organisational, legislative, and social norms regarding the ethics of earnings management may vary significantly, with the views of top management and economic environment playing significant roles in shaping the organisational social norm. Thus, the aim of this research is to assess if earnings management is the common practice of enterprises within V4 countries. A novel approach of the selection process to assess the ability of selected earnings management detection models was applied. To highlight discrepancies and similarities among the countries, the non-parametric alternative of analysis of variance was applied. The research confirmed that enterprises do manipulate earnings, typical is upward manipulation. Furthermore, the research unveiled the extent of manipulation with earnings in unique country samples and thus emphasised the importance of both corporate and national ethical principles and managerial decisions, which affect corporate financial reporting quality. However, it is increasingly challenging to identify various aspects and incentives which forced enterprises operating at the global level to smooth and inflate earnings to improve earnings presented in the financial statements and to misinterpret financial results.
Highlights
Earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of corporate business activities and financial position (Ye, 2007)
The empirical research on earnings management has been marked by a few events that have had a great impact on the knowledge of earnings management; the most important is the introduction of non-discretionary accruals (N.D.A.s; Jones, 1991), which are understood as obligatory expenses that are yet to be realised but are already recorded in the account books (Bartov et al, 2000)
Analysing all 11,105 enterprises in the database it was proved that the modified Jones model proposes significant results estimating the D.A.s compared to other models (Svabova et al, 2020)
Summary
Earnings management (earnings manipulation) is the use of accounting techniques to produce financial statements that present an overly positive view of corporate business activities and financial position (Ye, 2007). Kang (2005) clarifies that D.A.s are non-obligatory expenses that are yet to be realised but are recorded in the account books and measure performance and position of a company by recognising economic events regardless of when cash transactions occur (Dechow & Dichev, 2002). The empirical research on earnings management has been marked by a few events that have had a great impact on the knowledge of earnings management; the most important is the introduction of non-discretionary accruals (N.D.A.s; Jones, 1991), which are understood as obligatory expenses that are yet to be realised but are already recorded in the account books (Bartov et al, 2000). The concept of earning management is still topical and of interest in financial and accounting literature and this subject assures the importance of this topic among researchers
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