Earnings management can be understood as the implementation of suitable accounting techniques for developing financial reports which indicates a highly positive picture of the organization’s business activities along with financial situation. Several accounting principles and rules need the company’s management to make certain judgments (Ali & Zhang, 2015). Earnings management includes alteration of the financial reports in order to mislead stakeholders regarding a company’s underlying performance. The objective of this report is to offer certain perspectives on earnings management within Singapore and other Asian nations. Moreover, the paper will also explain the ethical concerns associated with the earnings management practiced within the Singapore.
Earnings management is deemed as management’s action in bringing reported earnings within the desired level (Bartov et al., 2017). Earnings manipulation has three mutually exclusive types such as earnings fraud, management and creative accounting. At the time earnings manipulation is carried out through practicing certain discretion recorded by accounting standards and business laws along with structuring activities in a manner which anticipated that organizational value is not impacted negatively. This can be deemed as earnings management by the Singaporean companies or it can be deemed as earnings fraud.
In contrast to that several academics of Singapore and Asian nations has a hostile attitude towards earnings management (Capkun, Collins & Jeanjean, 2016). An elaboration for the earnings management can be considered as earnings management is referred as earnings fraud. Many companies in Singapore accused earnings management to be a fraud or a process that results in representational financial statements unfaithfulness. Moreover, they few Singaporean practitioners also consider earnings management to have deviousness or unethical actions.
Few Asian companies believe that earnings management does not always involve falsifying figures as this is more regarding moving the money around (Chen, Cheng & Wang, 2015). Another good types of earnings management is “The Big Bath” through which several Singaporean companies shift all types of expenses, one-time charges along with write offs within that year and bringing revenue out of it. This facilitates in realizing profits in upcoming years. The advantage behind such earnings management strategy is that in case the company’s share price suffers the loss might not be high if the organization is capable to inflate all its loss.
Management is deemed to feel the pressure for manipulating the earnings of the organization’s accounting practices for addressing financial expectations and maintaining the organization’s share price high (Cheng, Lee & Shevlin, 2015). However, several executives attain bonus relied on earnings performance and others might be best fit for stick options which produces a profit at the time of stock price increase. Several types of earnings manipulation remain uncovered through the necessary Security Exchange Commission disclosures or in case a CPA organization carries out an audit program.
Certain accepted accounting principles facilitates the managers of Singapore and other Asian nations to alter the reported earnings amount and it always report an equal earnings amount within the financial statements of the company (Dou et al., 2016). The most vital factors are observed to be discretionary and total accruals. Singaporean companies conducted an analysis on earnings management use and perceive that the management focuses n the use of discretionary accruals those are accruals which cannot be explained through normal operation. Discretionary accruals facilitate the Asian management in anticipating the identification time and credit sales limitation. This results in financial statements which do not reveal the real situation of the organization (Enomoto, Kimura & Yamaguchi, 2015). For this reason the users and the investors are incapable to adequately use financial statements in making suitable decisions that leads to low quality financial reporting.
Income smoothening is mostly used earnings management techniques in Asian countries. It has been observed that the managers intends to smooth income in beating earnings target. It is also gathered that Audit quality, Ecocrisis and Size are not explained properly for the smoothening behavior of the Asian companies (Filip & Raffournier, 2014). Moreover, these factors are the predictors for smoothening the behavior of the Asian companies which gets involved in income-increasing earnings management. “Big Bath Phenomenon” at the time of GFC period explaining that corporate managers manipulate their reported earnings downward in order to make weak results more poor within recent financial period that falsely improves earnings in future years (Ge & Kim, 2014). One approach that is followed by Asian companies is manipulating financial statements. This approach is followed by these companies through inflating recent period earnings within income statement through falsely inflating gains and revenue or through deflating expenses of recent year.
Earning management is greatly practiced in Asian countries that are segmented within pure financial reporting decision and real operating decisions. Earnings management practice is followed by Asian countries for the reason that it is developed to manage the decision making timing of an organization’s investments along with production (Ipino & Parbonetti, 2017). Through real earnings management, in Singapore managers seek to organize all their transactions along with altering the transaction timings to facilitate the people in transforming bad into good news (Rusmin, Astami & Hartadi, 2014). Empirical studies evidenced that in management incentives in attaining increased rewards for attaining advantages of certain circumstances along with reporting desirable numbers happens to be the major cause that Asian nations follow earnings management. Manfement within Asian nations tends to employ income-decreasing earnings management with an intention of attaining government assistance along with protection (Kedia, Koh & Rajgopal, 2015). There is a major reason for which Asian nations prefer using earnings management that includes reported earnings which serves as vital financial information which is considered by people in making several financial decisions.
With Asian countries following the process of earnings management, investors focus on financial information that is mentioned within the financial statements of the economic organizations in taking decisions for investment within the organizations (Kim, Kim & Zhou, 2017). It is gathered that the investors within the Asian countries tends to have an idiosyncratic perceptions regarding earnings management. Investors of the revenue increasing companies are inclined towards over adjusting the analyst optimism. Moreover, investors of the highly managed companies are deemed to under-adjust for earnings management. At the time earnings manipulation is carried out through practicing certain discretion recorded by accounting standards and business laws along with structuring activities in a manner which anticipated that organizational value is not impacted negatively (Ramachandran et al., 2015). This can be deemed as earnings management by the Singaporean companies or it can be deemed as earnings fraud.
There are several earnings management practices adopted by the Asian countries that is deemed ethical for the practitioners and few of them are considered unethical for them. For instance, income smoothening is deemed to be a practice of active earnings manipulation for specified target and this can affect a company’s cash flows (Ramachandran et al., 2015). There are certain instances in which business practices are deemed ethical and leads to income smoothening. This is in case a company has an employee bonus plan, a deferred profit sharing plan and has a charitable giving plan. However, income smoothening through abusing the leeway within accounting principles is observed to be unethical and presents a disservice to the financial statement users or investors (Rusmin, Astami & Hartadi, 2014).
The ethics regarding the results of earnings management has been a great concern within the accounting profession. It is deemed by the Asian Countries that fraudulent financial reporting can take place in case if the accountants and managers are associated with earnings management (Shafer, 2015). Increasing profit through operating manipulations are deemed to be decisions that impacts the selection and timing of real business events much as increasing or deferring production, maintenance, shipping to customers along with research and development.
The conduct of the charitable organizations to manipulate its earnings downward can be considered as highly unethical. These non profit Asian companies are observed to link their accounting measures in order to pay frequently have several undesirable along with unethical behaviors. In case the charitable organization manipulates its earnings there is negative impact on the earnings quality (Wu et al., 2016). They are involved in such conducts for attaining more donation or sponsorship. An elaboration for the earnings management can be considered as earnings management is referred as earnings fraud. Many companies in Singapore accused earnings management to be a fraud or a process that results in representational financial statements unfaithfulness. Moreover, they few Singaporean practitioners also consider earnings management to have deviousness or unethical actions.
Conclusion
The objective of this report is to offer certain perspectives on earnings management within Singapore and other Asian nations. Moreover, the paper will also explain the ethical concerns associated with the earnings management practiced within the Singapore. It is gathered from the paper that several academics of Singapore and Asian nations has a hostile attitude towards earnings management. An elaboration for the earnings management can be considered as earnings management is referred as earnings fraud. Few Asian companies believe that earnings management does not always involve falsifying figures as this is more regarding moving the money around. The most vital factors are observed to be discretionary and total accruals. For this reason the users and the investors are incapable to adequately use financial statements in making suitable decisions that leads to low quality financial reporting.
References
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