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Abstract
Purpose: The objective of this article is to review both empirical and theoretical literature that concentrates on the techniques of earnings management. IFRS perspective is employed in order to establish a novel comprehension of the earnings management phenomenon.
Design/methodology/approach: the study uses secondary sources include a rigorous review of scholars' findings from a major academic journals and publications worldwide.
Findings: This review confirms that earnings management could be deemed either legitimate if the managers are within the limits of the International Financial Reporting Standards, or illegitimate if these standards are violated. Further, the study concludes that earnings management techniques might be suspected as being fraudulent practices depending on the way which managers employ those techniques.
Originality/value: In contrast with prior literature, where many researchers focused on studying the effect of IFRS adoption on earnings management, this study deals with IFRS as a perspective not as an influencer which is the contribution of this study. Hence, the current article provides a framework to differentiate whether these techniques fall under earnings management practices or fraud from IFRS perspective, and also it calls attention to the space of discretion existed in IFRS.
Keywords: Earnings Management, IFRS, Accruals, Fraud
1.Introduction
Recent capital markets are generated via financial information, an effective investment decisions rely basically on information of high quality (Ogbonnaya et al., 2016). Earnings are the essence item in financial statements which is represented by the bottom line in the statement of Profit or Loss, and it summarizes the financial performance of an entity (Cudia et al., 2018; Dechow, 1994; Ghazalat et al., 2017; Kighir et al., 2013; Rahman et al., 2013). Nevertheless, managers can take advantage of the right and control that provided by the accounting system and then use their judgment while preparing financial statements and determining earnings (Bhundia, 2012; Franceschetti, 2018).
Earnings management phenomenon became a worldwide issue facing economies, and it is notably increasing in the last two decades (Alves, 2012; Hashim et al., 2013). Latest corporate collapses like; Enron, WorldCom, HIH Insurance, Nortel, eToys, Rite Aid, HealthSouth, Subeam, and Arthur Anderson have strongly indicated that the most managers nowadays are practicing earnings management (Rani et al., 2013, Toumeh et al., 2018). As a consequence, earnings management may not reflect the real performance...