Abstract
One of the key tasks of financial accounting from its beginnings to the present day is to determine the performance of the company. The financial statements should provide users with a true and fair view of the financial position and financial performance of the entity during the period. At present, profit represents the most frequently accepted measure of a company’s financial performance. An important prerequisite for profit as a reliable measure of performance is its quality, which can be influenced by various factors or techniques resulting from earnings management. This paper aims to compare the detection capability of the Jones model and its modifications for assessing the occurrence of earnings management in the conditions of the Slovak Republic. We use the regression analysis and comparison method, based on which we compare the detection capability of the Jones model and its modifications for assessing the occurrence of earnings management in the conditions of the Slovak Republic. The contribution of the paper lies in the observation of the Jones model and its modifications to determine a suitable model for assessing the existence of earnings management in companies in Slovakia, which will be the subject of future research.
Highlights
We evaluated selected analyzed profit models based on three criteria, which adjusted the coefficient of determination, standard deviation, the level of statistical significance of individual profit models, and statistical significance of variables contained in the analyzed profit models
To find out whether the Jones model and its modifications can capture and detect earnings management in the conditions of the Slovak Republic, we set four criteria, based on which we assessed the effectiveness of selected models
The four main criteria included the adjusted coefficient of determination, the standard deviation, the statistical significance of the profit models, and the statistical significance of the variables contained in the analyzed profit models
Summary
The question of why profit is such an important indicator of a company [15] that it has become the subject of management and manipulation is answered by Ronen and Yaari [6] explaining three approaches based on the separation of shareholder ownership and management in publicly traded companies. This creates a conflict of interest between the parties, as management decisions may not always be in line with the views of business owners. Profit allows owners to use limited tools more effectively, helping to eliminate information asymmetries between owners
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