Earnings Management : Conceptual Framework and Research Developments

Financial reports are prepared to ensure timely availability of reliable information regarding companies' state of affairs to its users. But when financial statements fail to meet the information expectations of the stakeholders due to lack of qualitative characteristics (ICAI, 2000) like understandability, relevance, reliability, comparability and faithful representation, it raises a question mark on the authenticity of financial reports by corporate houses. The absence of true and fair financial reporting indicates the presence of manipulation in accounting numbers, which can be in the form of fraud, creative accounting and earnings management. Earnings management is modifying the reported accounting figures by using the discretion provided by the accounting standards in such a way that there is no impact on the overall value of the firm. Earnings management is the first step which, if not paid attention to, gets aggravated and becomes fraud. The present paper approaches earnings management keeping research developments and the concepts related to earnings management in view