IMPACT OF EARNING MANAGEMENT ON DISCRETIONARY AND NON-

DISCRETIONARY ACCRUALS
INTRODUCTION
EARNING MANAGEMENT
The use of accounting techniques to produce financial report that contain positive
picture of companys business activities and financial position
Earnings are the profits of a company. Investors and analysts look to earnings to
determine the attractiveness of a particular stock. Companies ith poor earnings
prospects ill typically have loer share prices than those ith good prospects.
Earnings management consists of to kinds! namely accrual earnings management and
real earnings management.
ACCRUALS
"ccruals are ad#ustments for $% revenues that have been earned but are not yet
recorded in the accounts! and &% e'penses that have been incurred but are not yet
recorded in the accounts. Earnings management( )tudies related to earnings
management mostly related to accruals.
"n e'ample of an accrual involving an e'pense is an employee*s bonus that as earned
in &+$&! but ill not be paid until &+$,. The &+$& financial statements need to reflect the
bonus e'pense and the bonus liability. Therefore! prior to issuing the &+$& financial
statements an ad#usting entry is prepared to record this accrual.
DISCRETIONARY ACCRUALS
-on.obligatory e'pense /such as an anticipated bonus for management% that is yet to
be reali0ed but is recorded in the account books.
NON DISCRETIONARY ACCRUALS
" non avoidable e'pense that has been recorded in the account statements! but has yet
to be fulfilled. 1or e'ample! ne't months electricity bill.
LITERATURE REVIEW
In recent decades! many studies have been done in the conte't of earnings
management. 2ost studies are discussed on identifying the motives! means and factors
affecting earnings management. 1rom 3ealy 4 5ahlen point of vie! earnings
management occurs hen managers use their on #udgment for financial reporting and
do this act aimed to confuse some shareholders about the true economic performance
or to influence the outcome of the contracts based on reported accounting numbers.
Earnings management( )tudies related to earnings management mostly related to
accruals.
1rom 6egeorge point of vie! earnings management is a kind of artificial manipulation
of earnings to reach the e'pected level of profits for some specific decisions
METHODS
In order to collect data! directly use financial statements of companies! attached notes
and stock trading reporting. Initial processing of the data as performed by using e'cel
and )7)) and Clementine )7)) statistical softare as used for analysis. 5e use
multiple regression in order to test variable.
CONCLUSION:
"ccrual earning management can increase firm value significantly. In other ay real
management cannot affect firm value. Earning management can be benefical to
shareholder. It is because manager manages earnings to give some information that
are not conveyed in unmanaged earnings.
Earnings management sometimes confuses financial statements hile financial
statements do not have any problem in the conte't of accounting standards and
auditors cant be rong of financial statements about this opinion.
8esults indicated that reverse relationship e'ists beteen earnings management and
both discretionary and non.discretionary accruals. It also indicate that there as not
significant relationship beteen debt ratio ith both of discretionary and non.
discretionary accruals.