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Earnings Management: The Continuum from Legitimacy to Fraud.
Finance & Accounting
Pages 10 (2510 words)
There is a continuous argument in the audit circle on whether earnings management is another form of fraud. Fraudulent financial reporting engages deliberate misstatements or exclusion of figures or dissemination in financial statements as a part of a design to “manage earnings.”
The regulators should offer the external auditors with more assistance and to impart more knowledge on earnings management. Introduction There is a continuous argument in the audit circle on whether earnings management is another form of fraud. As per empirical research carried over by Jiraporn, et al (2007) and Diana & Madalina (2007), since it is within the periphery of GAAP, earnings management is not a fraud whereas empirical research carried over by Jones (2011) and Chia et al, (2007) found that earnings management is another kind of financial reporting fraud. Hence, there is a necessity on the part of external auditors to spot out the variance between the financial reporting fraud and earnings management. “Objectives of the Research” The main objective of this research paper is to enhance the knowledge of the external auditor about earnings management and to assist them to detect the variance between financial reporting fraud and earnings management. To accomplish the aim of this research paper, a thorough literature review was performed. This research has found that a new approach is the need of the hour to make the management’s motive which is the significant motivator for all fraudulent activities. This research paper also makes its recommendations to be followed in the future. ...
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