Earnings management practices in India: a study of auditor's perception

Abstract

Purpose – Earnings management are euphemisms referring to accounting practices that may follow the letter of the rules of standard accounting practices, but certainly deviate from the spirit of those rules. Companies across the world follow earning management practices in a way so as to show a favourable position to their stakeholders. Satyam scam in India was a similar type of case. The present study has been carried out with the aim of examining the perception of auditors on earnings management in Indian perspective. Design/methodology/approach – A questionnaire was administered on 65 auditors and was analysed using descriptive statistics and factor analysis methods. Findings – The analysis shows that most of the firms indulge into such practices even in the presence of regulatory framework available to keep a check on these practices. The management tries to interpret and modify the law provisions as per their will and do manipulations in the financial results. Practical implications – The research findings would guide regulators and management to curb such malpractices. The auditors, top management and government have to become more aware, socially responsible, have ethical behaviour, become more transparent to protect the interests of stakeholders associated with the organizations. Originality/value – The paper provides an insight into auditor's perception on earnings management during a time when financial scams like Satyam in India have taken place and auditor's integrity is questioned.