Management Predisposition, Motive, Opportunity, and Earnings Management for Fraudulent Financial Reporting in Malaysia

Earnings Management and Financial Reporting Fraud: Can External Auditors Spot the Difference?

“…It has also been noted by Abdul Rahman and Ali (2006) and Jones (2011) that even if earnings management did not violate accounting standards, it may still lead to inaccurate information about the company, which will in turn mislead investors in judging the performance of the company. In a research carried out by Hasnan, et al (2008) their findings revealed that earnings management has a positive and significant relationship with financial reporting fraud. Further, Jiraporn, et al, (2009) mentioned that the recent scandals at Enron, WorldCom and elsewhere have generated a public perception that earnings management is utilized opportunistically by firm managers for their own private benefits rather than for the benefits of the stockholders.…”

“…Reviewing the literature showed mixed results regarding whether earnings management is an ethical act. Some researchers (Subramanyam, 1996;Watts & Zimmerman, 1986;Holthausen, 1990;Demski, 1998;Glover & Sunder, 2003as cited in Jiraporn, et al, 2007Peasnell, et al, 2001, as cited in Abdul Rahman & Ali, 2006;Davis-Friday and Frecka, 2002;Diana & Madalina, 2007;Jiraporn, et al, 2007) argue that there is nothing wrong with earnings management because it is within the boundaries of GAAP, while others (Healy & Wahlen, 1999;Public Oversight Board, 2000;Rosner, 2003;Abdul Rahman & Ali, 2006;Jones, 2011;Hasnan, et al, 2008;Jiraporn, et al, 2007;Kamel & Elbanna,2010;Perols & Lougee, 2010;Beneish, 2001;Higson, 2003;Chia, et al, 2007;Jones, 2011) believe earnings management is not just an unethical act but another form of financial reporting fraud. By and large the debate on earnings management and fraud will continue unless there is a proper way to help auditors identify the difference between them.…”

Integrating ethical values into fraud triangle theory in assessing employee fraud: Evidence from the Malaysian banking industry

“…This definition is particularly true for auditors who may not recognize the symptoms associated with pressure because they have often limited interactions with potential perpetrators and lack a baseline from which to evaluate current behavior (Coenen, 2007). Moreover, Hasnan et al (2008) defined pressure in the case of financial frauds as pressure from the outside environment to meet a certain earning target, or an individually generated desire to achieve a specific financial target to earn points. Skousen and Wright (2006) examined the role of the fraud triangle elements in detecting and predicting fraud cases.…”

Examining upper echelons managers’ characteristics on financial restatements

“…Financial restatement signifies material misstatements and fraudulent financial reporting (Hasnan, Abdul Rahman, & Mahenthrian, 2008). The restated financial statements reflect ambiguity of financial information disclosure.…”

“…The restated financial statements reflect ambiguity of financial information disclosure. It portrays a catastrophic failure in an organisation's governance system which is often under the control and authority of an organisation's management (Hasnan, Abdul Rahman, & Mahenthrian, 2008;Kimbery, 2013). The United States General Accounting Office (GAO) (2002) indicates that the incidents of financial restatement often occur when there is a deliberate misstatement of financial accounting information in the company's financial statements.…”