Earnings Management & Accounting Practices

The assignment focuses on analyzing a collection of research papers exploring the phenomenon of earnings management within the context of accounting practices. It delves into diverse aspects of earnings management, including its impact on financial reporting, the role of corporate governance, and the influence of regulatory frameworks like IFRS adoption.

Running head: EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
An Investigation into Earnings Management in Singapore and Other Asian Countries
Name of the University:
Name of the Student:
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1EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
Table of Contents
1. Introduction......................................................................................................................2
2. Perspectives on Earnings Management...........................................................................2
2.1. Perspectives on Good and Bad Types of Earnings Management.............................2
2.2. Impacts of Earnings Management on Accounting Information Quality..................3
3. Earnings Management in Singapore and Other Asian Countries....................................3
3.1. Techniques Used by Asian Companies in Manipulating Earnings..........................3
3.2. Earnings Management in Asian Countries...............................................................4
3.3. Investors Reaction to Earnings Management...........................................................4
4. Ethical Issues Related to Earnings Management.............................................................5
4.1. Types of Earnings Management and Ethical Issues.................................................5
4.2. Results of Earnings Management.............................................................................5
4.3. Is it Ethical for Earnings Management.....................................................................5
5. Conclusion.......................................................................................................................6
References............................................................................................................................7

2EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
1. Introduction
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.
2. Perspectives on Earnings Management
2.1. Perspectives on Good and Bad Types of Earnings Management
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,

3EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
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.
2.2. Impacts of Earnings Management on Accounting Information Quality
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.
3. Earnings Management in Singapore and Other Asian Countries
3.1. Techniques Used by Asian Companies in Manipulating Earnings
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

4EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
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.
3.2. Earnings Management in Asian Countries
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.
3.3. Investors Reaction to Earnings Management
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

5EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
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.
4. Ethical Issues Related to Earnings Management
4.1. Types of Earnings Management and Ethical Issues
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).
4.2. Results of Earnings Management
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.
4.3. Is it Ethical for Earnings Management
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

6EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
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.
5. 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.

7EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
References
Ali, A., & Zhang, W. (2015). CEO tenure and earnings management. Journal of Accounting and
Economics, 59(1), 60-79.
Bartov, E., Marra, A., Dossi, A., & Pettinicchio, A. K. (2017). Earnings Management,
Timeliness, and Corporate Information Systems.
Capkun, V., Collins, D., & Jeanjean, T. (2016). The effect of IAS/IFRS adoption on earnings
management (smoothing): a closer look at competing explanations. Journal of
Accounting and Public Policy, 35(4), 352-394.
Chen, X., Cheng, Q., & Wang, X. (2015). Does increased board independence reduce earnings
management? Evidence from recent regulatory reforms. Review of Accounting
Studies, 20(2), 899-933.
Cheng, Q., Lee, J., & Shevlin, T. (2015). Internal governance and real earnings management. The
accounting review, 91(4), 1051-1085.
Dou, Y., Hope, O. K., Thomas, W. B., & Zou, Y. (2016). Individual Large Shareholders,
Earnings Management, and Capital‐Market Consequences. Journal of Business Finance
& Accounting, 43(7-8), 872-902.
Enomoto, M., Kimura, F., & Yamaguchi, T. (2015). Accrual-based and real earnings
management: An international comparison for investor protection. Journal of
Contemporary Accounting & Economics, 11(3), 183-198.
Filip, A., & Raffournier, B. (2014). Financial crisis and earnings management: The European
evidence. The International Journal of Accounting, 49(4), 455-478.
Ge, W., & Kim, J. B. (2014). Real earnings management and the cost of new corporate
bonds. Journal of Business Research, 67(4), 641-647.
Ipino, E., & Parbonetti, A. (2017). Mandatory IFRS adoption: the trade-off between accrual-
based and real earnings management. Accounting and Business Research, 47(1), 91-121.

8EARNINGS MANAGEMENT IN SINGAPORE AND ASIAN NATIONS
Kedia, S., Koh, K., & Rajgopal, S. (2015). Evidence on contagion in earnings management. The
Accounting Review, 90(6), 2337-2373.
Kim, J., Kim, Y., & Zhou, J. (2017). Languages and earnings management. Journal of
Accounting and Economics, 63(2), 288-306.
Ramachandran, J., Ngete, Z. A., Subramanian, R., & Sambasivan, M. (2015). Does corporate
governance influence earnings management?: Evidence from Singapore. The Journal of
Developing Areas, 49(3), 263-274.
Rusmin, R., W. Astami, E., & Hartadi, B. (2014). The impact of surplus free cash flow and audit
quality on earnings management: The case of growth triangle countries. Asian Review of
Accounting, 22(3), 217-232.
Shafer, W. E. (2015). Ethical climate, social responsibility, and earnings management. Journal of
Business Ethics, 126(1), 43-60.
Wu, Y. C., Ting, I. W. K., Lu, W. M., Nourani, M., & Kweh, Q. L. (2016). The impact of
earnings management on the performance of ASEAN banks. Economic Modelling, 53,
156-165.