Ethical Judgments of Directors’ on Earnings Management Practices

Author Information

Hafiza Aishah Hashim, Universiti Malaysia Terengganu, Malaysia
Shamsul Nahar Abdullah, International Islamic University Malaysia, Malaysia
Zalailah Salleh, Universiti Malaysia Terengganu, Malaysia

Abstract

The objective of this study is to determine directors' ethical judgments of earnings management practices. We use the questionnaire which was originally designed by Bruns and Merchant (1990) which consists of 13 earnings management scenarios. The questionnaire asked the directors to rate their acceptability of earnings management practices using a 5-point scale ranging from ethical to totally unethical. We find that the ethical judgments of directors are affected by the types of earnings management. The directors view accrual-based earnings management is more unethical than real-based earnings management. Our findings require attention of auditors and regulators to be aware of overlooked area in financial information as firms can switch from accrual to real-based earnings management method in preparing their financial statements.

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• Category: ACERP2016, ACP ACERP 2016, Oral Presentation, Paper Available
• Tag: Business and Management Ethics,

Posted by James Alexander Gordon

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