Study on the Earning Management Process, and Practices, Challenges and Risks in the Banking Organisations
Author : Dr. S Srinivasa Padmakar and Dr. M Akilanayaki
Abstract :
Management and the Organisation are two parallel wheels of a corporate organisation. Management as the controlling body takes the policy decisions and leave it for the implementation to the organisation. According to the Policy decisions, taken by the management, organisation sets its objectives, goals and targets independently and departmentally. Here the role of the organisation is to fulfil the objects and goals with group of people. The objectives of organization shall be fulfilled as group or team work.
Organisation survival depends on company progress like earning profits. Progress in production improves the sales turnover as per the growth the targets. Promotion in sales earns the profit. For all these activities, management policy decisions and the function of the management will lead the organisation.
Earning management as defined by Healy and Wahlen in 1999 “Earnings management occurs when managers use judgement in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company, or to influence contractual outcomes that depend on reported accounting numbers”
Management decision-making process has its impact on the management earnings. To maintain continuous earnings in the company organisation, management will make certain changes, alterations, adjustments, in the financial accounting records. These are called accounting manipulations by reducing deferred revenue expenditure, accrued incomes, realisation of bad and doubtful debts etc., as facilitated the flexibility in the accounting standards.
“Most of the UK companies have manipulated their accounts” Kannaeli Gabriel Nnko The annual financial statements are just like the mirror which reflects the “true and fair financial position” of the organisation.
“The existence of ‘’earnings management’’ reduces the reliability of the financial statement”
The stakeholders (users of financial statements) of the company like investors, bankers, government, creditors want to go through and observe the contents of annual financial statements of banking, and financial institutions to know how much profit earned in the year, and the financial position of the banks. To show the Profit in the financial statement, management follow certain strategies, procedures and practices in preparing the financial statements with certain logical adjustment, to show the profits for the sake of stakeholders. This paper creates awareness among the readers on the earning management concept and the techniques, strategies and practices of the managements. Annual financial returns of nationalised banks will be taken for the secondary data source to draw the meaningful information. This paper is in descriptive nature taking banking organisation as sample study.
Keywords :
“Earning Management”, financial reporting, stake holders (users) of financial statements, Accounting Statement Manipulation, logical adjustment, Reliability of the financial statements.
