ACC03032 Contemporary Issues in Accounting: Article Analysis

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Running Head: CONTEMPORARY ISSUES IN ACCOUNTING
CONTEMPORARY ISSUES IN ACCOUNTING
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1COMTEMPORARY ISSUES IN ACCOUNTING
Subject: Habbash, M., 2019. The role of corporate governance regulations in constraining
earnings management practice in Saudi Arabia. In Research in Corporate and Shari’ah
Governance in the Muslim World: Theory and Practice (pp. 127-140).
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The chosen article by Murya Habbas has given his views on corporate governance role in
constraining the earnings management practices in the Saudi Arabia. This article is based on
the Topic 5 of the corporate governance. The author has demonstrated in his article that how
corporate governance helps in assisting the convergence of the interests between the
managers as well as shareholders for the enhancement of the financial reporting quality. The
theory of stakeholders helps the business organization for creating the value as much possible
for the stakeholders. This theory of stakeholder focusses on effect of the activities of the
corporate on all the identifiable corporation stakeholders. In the recent decades, especially
after several collapses of the large firms, the regulators of the stock market as well as the
agencies of the protection of investor have always been very much concerned about the
earnings management. In the article, author has stated that there exists negative as well
significant relationship, which is in between the independence of board as well as indicator of
the earnings management. The larger the board of the company, the more effective would be
monitoring of the financial reporting. The author has also stated that in case, if the sizes of
the board are larger, then meetings of board will not be suitable communication means
between the directors. Therefore, the theory of stakeholders applies to the article, as this
article gives the understanding that the firm, which is having mechanism of effective
corporate governance, undertakes less management of accruals. The analysis suggests that

2COMTEMPORARY ISSUES IN ACCOUNTING
aspects like board size as well as its independence in the negative way affect earnings
management at the significant levels.
From this article, I have learned a variety of things. Previously I was thinking that
corporate governance was essential to ensure that proper control is maintained in the firm.
However, I never considered the fact that too much of regulations will negatively affect the
earnings of the firm. I have also learned about how corporate governance measures can be
improved. I have also understood that too much access to particular sub-committees like audit
committee and remuneration committee is not beneficial for the entity. This is because it
creates information asymmetry within the organization. Hence, in relation to the
stakeholders’ theory, I have understood that introducing too many corporate governance
measures is likely to cause problems within the firm and negatively affect its earnings
management. The final aspect that has gained by attention is the role of the chairman. In case
of an entity, I used to consider that the chairman would always act by keeping the best
interests of the organization in mind and hence they needed to be independent. I, therefore,
suggest that there should be new measures to guide the independence of the chairmen.

3COMTEMPORARY ISSUES IN ACCOUNTING
Reference .
Habbash, M., 2019. The role of corporate governance regulations in constraining earnings
management practice in Saudi Arabia. In Research in Corporate and Shari’ah Governance in
the Muslim World: Theory and Practice (pp. 127-140). Emerald Publishing Limited.
URL Link of Article - https://cbe.uaeu.ac.ae/en/csafc/pdf/ad_58.pdf