What can auditors tell us about accounting manipulations?

Abstract

Purpose This paper aims to examine the frequency and the nature of International Financial Reporting Standards/International Accounting Standards (IFRS/IAS) violations that resulted in modified audit opinions (MAOs); determinants of MAO decision; and underlying motives, targets and techniques of accounting manipulations. Design/methodology/approach Descriptive statistics and in-depth investigation on archival data collected from the published audit reports are used to analyse the frequency and the nature of IFRS violations that resulted in MAOs, while the logistic regression is applied to identify the possible determinants of MAO decisions. A survey instrument is used to identify the relative importance of different manipulation motives, targets and techniques from the perspective of an external auditor. Findings Results from the archival research show that MAOs are expressed in 29% of audit reports of listed companies in Croatia. A majority of the qualifications refer to noncompliance with provisions of IAS 39, IAS 16, IAS 1, IAS 2 and IAS 36. The survey results show that manipulations are principally oriented towards creditors, tax authorities and suppliers with the intention to hide bad performance, get better terms of crediting and minimize fiscal and political costs. Results from the field study complement and confirm the archival research results in respect to the accounting areas and techniques used for manipulation purposes. Originality/value The analysis provides a rather robust estimation of the extent of accounting manipulations, compared to commonly used earnings management metrics. Application of multi-method research that integrates archival research and field study offers significant contribution to the existing earnings management literature in methodological approach. The results directly address particular provisions of the IFRS that are frequently violated and provide better understanding of the features of accounting manipulations in a specific institutional setting.

Peran Auditor Terhadap Praktik Earnings Manipulation Di Kalangan Perusahaan Lq45

“…Penelitian mengenai earnings manipulation sudah banyak diteliti diantaranya penelitian yang dilakukan oleh Aflatooni et al (2021); Aljinovic Barac et al (2020); Baskaran et al (2020);Beneish (2019;Beneish et al (2018); Kamal et al (2019); Kurniawati & Febiolla (2022); Ningsih & Reskino (2023); Nyakarimi (2022). Dari banyaknya penelitian tersebut kebanyakan berfokus pada faktorfaktor keuangan dan pengawasan, tetapi belum mempertimbangkan faktor budaya dalam memanipulasi laba.…”

The effect of earnings management on external loan price: evidence from China

“…Previous studies have documented numerous reasons for earnings manipulation, such as avoiding earnings decreases or losses (Burgstahler and Dichev, 1997; Mostafa, 2017), hitting earnings targets (Graham et al , 2005; Cao et al , 2018), satisfying dividend demand (Bernard and Skinner, 1996), achieving promotion (Noronha et al , 2008) or maximizing earnings-based bonuses (Guidry et al , 1999). In credit relationships, rigid requirements on debt covenants motivate borrowers to whitewash their earnings (Sweeney, 1994; Aljinovic Barac et al , 2017; Chung et al , 2021), especially for those at the edge of default (DeFond and Jiambalvo, 1994). On the other hand, institutional lenders rely on a given set of financial indices to assess borrowers’ default risk (Rao and Hu, 2005; Kim and Sohn, 2013).…”

Improving Audit Reports: A Consensus between Auditors and Users

“…In particular, the latest IFRS issued, IFRS 9 'Financial Instruments', IFRS 15 'Revenue from Contracts with clients', IFRS 16 'Leases' and IFRS 17 'Insurance Contracts', imply a high degree of interpretation from financial statement preparers. We believe that detailed information about the auditor's assessment regarding the main accounting policies, not only regarding going concern, would benefit stakeholders and should be included in audit reports (Aljinovic Barac et al 2017).…”