Earnings management (EM) is the main concern of stakeholders and regulators all over the world because EM is related to managers behaving opportunistically resulting in misreporting financial statement figures, especially in earnings. Ayedh, Fatima & Mohd (2019) examined earnings management (EM) behavior during the 2008 financial crisis in Malaysia. The findings showed that EM practices in 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 earnings management during troubled periods, for example, COVID-19. However, the justification for this behavior 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 studies in this area can be further contributed to the body of knowledge, including other stakeholders’ interests such as 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.

2. Discuss why the earnings management and related accounting treatments are not in compliance with relevant rules, explaining any ethical issues which may arise.