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Earning Management In Spain Case Study

940 Words4 Pages

Kinney, Palmrise and Scholz, (2004) describes Earning Management (EM) as management action that reduce the quality of financial performance in financial statements. Manager engages in EM to adjust the financial statement when they believe the user of accounting information cannot alter the effect of EM. EM is considered unethical because the earning is aimed to mislead investor.
There are a few studies related to the relationship between CSR and EM for example Prior, Surroca and Tribo (2007) conducted a research regarding Earning Management in Spain. Based on their research, they study about the relationship between EM and CSR by combining the database of 593 industrial firms and the database compile by the Sustainable Investment Research …show more content…

Besides that, based on prior study measuring CSR performance is difficult and problematic. Besides, CSR disclosure also easier to be compare within the group of companies.

2.5 Audit Opinion (AO) and Earnings Management (EM) Relationship.
To produce a high quality audit opinion report. Auditors need to be an independent person. Independence in mind which is the auditors needs to perform an unbiased attitude, and also independence in appearance which is the auditors is prohibited to have any relationship with the client. Thus, how auditor’s response to the EM has been the issues here. Auditors play an important role to produce a high quality audit in order to avoid fraud or accounting scandals, for example like what happen to Enron.
According to Reem and Ali, (2011), the previous study mostly examined the relationship audit quality with the size of the audit firm. They investigated whether the auditor will or how the auditor responses to EM by comparing the large audit firm auditors with smaller audit firms auditors. Thus, Reem and Ali et.al, (2001), focused on how the size of the audit firm affects the audit …show more content…

The value-added of the CSR activities in order to access the better future of the firm in term of the competitiveness and efficiency may become attractive to the investor to invest in the company. Mecaj and Bravo (2014) investigate whether financial distress has an impact on CSR activities and changes the attitude of the firm toward responsible behavior. In that research, they raise up a question regarding the responsible behavioral act which is it possible to act as a mitigation factor of ongoing concern’s firm when it had been taken place by financial distress

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