Earnings management ethics: Stakeholders' perceptions

Yasser Barghathi, David Collison, Louise Crawford

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The paper examines the ethical perceptions of different stakeholders regarding earnings management by Libyan Commercial Banks (LCBs). A total of 28 semi-structured interviews were carried out with a range of LCB stakeholders comprising preparers of financial statements, users, regulators and academics. A questionnaire survey of stakeholders which yielded 102 Responses (response rate 53%) was also carried out.Interview findings indicated that 50% of the interviewees have the view that EM is ethical. Questionnaire results, on the other hand, revealed that EM is agreed, on balance, to be perceived unethical. However, EM if applied within GAAP and laws it is perceived, on balance, to be ethical.Practicalities of contacting both interviewee and questionnaire respondents have implications for generalisability, while the methods employed, while widely used, have intrinsic limitations.The paper provides insights into stakeholders’ perceptions of EM ethics. The findings are of particular relevance to the users, and specifically, the external auditor as well as current and potential investors. EM practices, according to the literature, degrade the financial reporting quality and there affecting economic decision. Auditors should be aware that EM ethics is regarded to ethical practice and therefore more scrutiny might be required. EM is practiced by manager however it affects other stakeholders. In terms of accountability where a manager should be held accountable to not only shareholders but also the society as whole. However, in a Muslim county like Libya, accountability extends beyond these limits, managers has to be accountable on his action to God and then shareholders and other stakeholders.EM ethics research have largely been based on a questionnaire developed by Bruns and Merchant (1990). This paper address this issue in a different way. First, it examine the interviewees’ perception in a relatively straight forward way whether EM is ethical or not. Secondly, surveying stakeholders’ perceptions using a set of questions that considers, for example, the effect of EM on others’ interest and whether EM is ethical if it was applied within GAAP and laws.
Original languageEnglish
Publication statusPublished - 2017
EventBAFA 2017 Annual Conference and Dotoral Masterclasses - Edinburgh, United Kingdom
Duration: 10 Apr 201712 Apr 2017


ConferenceBAFA 2017 Annual Conference and Dotoral Masterclasses
Country/TerritoryUnited Kingdom


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