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What can auditors tell us about accounting manipulations?

Author

Listed:
  • Zeljana Aljinovic Barac
  • Tina Vuko
  • Slavko Šodan

Abstract

Purpose - This paper aims to examine the frequency and the nature of International Financial Reporting Standards/International Accounting Standards (IFRS/IAS) violations that resulted in modified audit opinions (MAOs); determinants of MAO decision; and underlying motives, targets and techniques of accounting manipulations. Design/methodology/approach - Descriptive statistics and in-depth investigation on archival data collected from the published audit reports are used to analyse the frequency and the nature of IFRS violations that resulted in MAOs, while the logistic regression is applied to identify the possible determinants of MAO decisions. A survey instrument is used to identify the relative importance of different manipulation motives, targets and techniques from the perspective of an external auditor. Findings - Results from the archival research show that MAOs are expressed in 29% of audit reports of listed companies in Croatia. A majority of the qualifications refer to noncompliance with provisions of IAS 39, IAS 16, IAS 1, IAS 2 and IAS 36. The survey results show that manipulations are principally oriented towards creditors, tax authorities and suppliers with the intention to hide bad performance, get better terms of crediting and minimize fiscal and political costs. Results from the field study complement and confirm the archival research results in respect to the accounting areas and techniques used for manipulation purposes. Originality/value - The analysis provides a rather robust estimation of the extent of accounting manipulations, compared to commonly used earnings management metrics. Application of multi-method research that integrates archival research and field study offers significant contribution to the existing earnings management literature in methodological approach. The results directly address particular provisions of the IFRS that are frequently violated and provide better understanding of the features of accounting manipulations in a specific institutional setting.

Suggested Citation

  • Zeljana Aljinovic Barac & Tina Vuko & Slavko Šodan, 2017. "What can auditors tell us about accounting manipulations?," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 32(8), pages 788-809, September.
    • Handle: RePEc:eme:majpps:maj-03-2017-1534
    DOI: 10.1108/MAJ-03-2017-1534
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    Citations

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    Cited by:

    1. Vudric, Nenad & Brlecic Valcic, Sonja & Dimitric, Mira, 2019. "Modern Understanding Of Business Model Analysis Of Croatian Hotel Companies Based On Financial Analysis," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(2), pages 201-214.
    2. Estibaliz Goicoechea & Fernando Gómez-Bezares & José Vicente Ugarte, 2021. "Improving Audit Reports: A Consensus between Auditors and Users," IJFS, MDPI, vol. 9(2), pages 1-25, April.
    3. Sayaf Algrady & Xie Xiaojun, 2022. "Influential Factors Affecting Earnings Management in Public Listed Companies: A Conceptual Model," International Review of Management and Marketing, Econjournals, vol. 12(2), pages 1-10, March.
    4. Mihai CARP & Iuliana Eugenia GEORGESCU, 2019. "The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(156), pages 666-666.

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