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Assessing the perceptions of the quality of reported earnings in Egypt

Assessing the perceptions of the quality of reported earnings in Egypt Purpose – The purpose of this paper is to assess respondents' perceptions of the quality of reported earnings in Egypt. To this end, three main issues are investigated: first, the potential incentives for engagement in earnings manipulation; second, the techniques most frequently used in manipulating earnings; and finally, the actions required to improve the quality of accounting information, including the reported earnings. Design/methodology/approach – A total of 16 semi‐structured interviews are conducted in order to uncover any undisclosed issues and to supplement the results provided by a questionnaire survey distributed among three groups of respondents, namely, accounting academics, external auditors, and financial managers. Findings – The results indicate that the main incentives for manipulating earnings in Egypt are to enhance the chances of obtaining a bank loan; to sustain last year's profit performance; to report profits and to avoid reporting losses; and to achieve high‐share valuation. The results also demonstrate that making inadequate provisions; capitalising rather than expensing expenditures; and overestimating the inventory value are the most frequently used techniques in earnings manipulation. Practical implications – The results could be of assistance to Egyptian external auditors and regulators in their attempt to limit the incidence of earnings manipulation. Originality/value – With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, research undertaken in a country such as Egypt, where the environment in many respects is different, may reveal a different perception of the quality of reported earnings and help determine how preparers in Egypt can further improve the quality of reported earnings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Assessing the perceptions of the quality of reported earnings in Egypt

Managerial Auditing Journal , Volume 25 (1): 21 – Jan 1, 2010

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References (68)

Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
0268-6902
DOI
10.1108/02686901011007298
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to assess respondents' perceptions of the quality of reported earnings in Egypt. To this end, three main issues are investigated: first, the potential incentives for engagement in earnings manipulation; second, the techniques most frequently used in manipulating earnings; and finally, the actions required to improve the quality of accounting information, including the reported earnings. Design/methodology/approach – A total of 16 semi‐structured interviews are conducted in order to uncover any undisclosed issues and to supplement the results provided by a questionnaire survey distributed among three groups of respondents, namely, accounting academics, external auditors, and financial managers. Findings – The results indicate that the main incentives for manipulating earnings in Egypt are to enhance the chances of obtaining a bank loan; to sustain last year's profit performance; to report profits and to avoid reporting losses; and to achieve high‐share valuation. The results also demonstrate that making inadequate provisions; capitalising rather than expensing expenditures; and overestimating the inventory value are the most frequently used techniques in earnings manipulation. Practical implications – The results could be of assistance to Egyptian external auditors and regulators in their attempt to limit the incidence of earnings manipulation. Originality/value – With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, research undertaken in a country such as Egypt, where the environment in many respects is different, may reveal a different perception of the quality of reported earnings and help determine how preparers in Egypt can further improve the quality of reported earnings.

Journal

Managerial Auditing JournalEmerald Publishing

Published: Jan 1, 2010

Keywords: Earnings; Financial reporting; Corporate governance; Egypt

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