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ABSTRACT

Earnings management (EM) is not a technical term in accounting or finance. However, it occurs when i) Firm management has the opportunity to make accounting decisions that change reported income, and ii) Exploits those opportunities. Earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of a company's business activities and financial position. Many accounting rules and principles require company management to make judgments. Earning management takes advantage of how accounting rules are applied and creates financial statements that inflate earnings, revenue or total assets. Earnings are the powerful indicators of the firms' business activities. Since a company's stock is measured by the present value of its future earnings, investors and analysts look to earnings to determine the attractiveness of a particular stock. It directly affects the overall integrity of financial reporting and significantly influences resource allocation in an economy. The objective of this paper is to help academic researchers, regulators, and investors better understand issues surrounding earnings management. Extent and type of earnings management depends on several factors like stock market incentives, personal incentives, political & regulatory motives. The main objective of this study is to focus on techniques, motives and control of earnings management

Keywords: Earnings Management, Accounting Technique, Firm Performance, Types of Earning.

INTRODUCTION

Earnings management is the practice of managerial actions that are reflected in a company's financial reports either to give the impression of smooth periodic or annual earnings, to show high profits in a given year at the 'expense' of lowering reported earnings in the future or to show low profit in a given year so that in future years reported profits will be higher. In some cases, management uses various accounting methods in order to convey private information to financial report readers. Management of earnings may mislead stakeholders about the true financial performance of the company. If management gains anything from managing earnings, one must ask whether such gains are at the expense of anybody.

The study explores the relationship between the practices of earnings management, firm performance. The prevalence of earnings management in India can be explained by some local factors: flexibilities provided by Indian regulatory bodies; unclear lines that can differentiate fraud and aggressive accounting (earning manipulation);...

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