ACC304 Accounting theory

Earnings management (EM) is a main concern by stakeholders and regulators all over the world because EM is related to managers behaving opportunistically resulted to misreporting financial statement figures, especially in earnings. Ayedh, Fatima & Mohd (2019) examined earnings management (EM) behaviour during the 2008 financial crisis in Malaysia. The findings showed that EM practices in the Malaysian companies were income decreasing during the crisis period (2008 and 2009), compared to the pre-crisis period (2005 and 2006) when the practices were income-increasing (Ayedh, Fatima & Mohd, 2019, p.4).

According to Lassoued and Khanchel (2021) there is a consensus to perform the earnings management during troubled periods, for example COVID-19. However, the justification for this behaviour seems to be controversial. Indeed, some authors argue that firms are induced to manipulate earnings upward, whereas others show that they have more incentives to inflate (Lassoued & Khanchel, 2021, p.2).

You are required to:

1. Suggest how future study in this area can be further contributed to the body of knowledge, including other stakeholders interest such as for regulators and business entities.

Note: Assuming you are a researcher who is interested to examine the impact of COVID- 19 on earnings management in Malaysia.

(10 marks)