Earning Management and Auditing Principles and Practice

Running Head: EARNING MANAGEMENT 0
Auditing Principles And Practice

EARNING MANAGEMENT 1
Executive Summary
Earning management is the technique of accounting that is used to provide a financial
statement to the people in a positive manner. This technique is used to make the investors
invest in the organization by presenting the statement in a positive way.
This report highlights about the role and relationship of the auditor with the earning
management and will focus the effect of substantive procedures on the financial statements
and in this report, the analysis is done on the issue of National Australian Bank misconduct
and fraud and the auditor dealing with the situation of misconduct and fraud.
This report will help in understanding the use of earning management in an ethical
way, along with the manner in which the auditors can minimize the risk.

EARNING MANAGEMENT 2
Table of Contents
Introduction........................................................................................................... 3
Earning Management................................................................................................... 3
Role of Auditor.......................................................................................................... 4
Substantive Procedures......................................................................................... 6
National Australia Bank................................................................................................ 7
Reduction of Earning Management................................................................................ 10
Conclusion.............................................................................................................. 12
Bibliography............................................................................................................ 13

EARNING MANAGEMENT 3
Introduction
Earning management refers to the process of improving the financial statements.
When the investor aims on investing in any company, they go through the financial statement
due to which it is important to improve the financial statement of the company. The role of
the auditor is to provide surety about the financial statements that the statements are in the
interest of the stockholders and are present in a fair manner. The quality of the audit is
analysed based on the auditor’s ability to identify the misdoing activities of the company (Lo,
2017).
In this report, the role and relationship of the auditor with earning management will
be discussed and overall study about the procedures performed while auditing the financial
report.
Earning Management
Earning management means adjusting the statements in a way that presents a positive
view of the company’s financial statement. The financial statement shows overall profits and
losses of the firm. This process does not mean manipulating the financial statements to show
positive aspects of company. The activities of earning management arise when the managers
have to provide some kind of private information to the users of the financial statements
(Tabassum & Kaleem, 2015).
The term earning management can be more understood if two words are separated
like Earning and management. Earning means the profit of the company. The company uses
the earning management so that they can produce consistent profits and stability. Although
the fluctuations in net income or gains or losses are part of the company's processes. The