Essays --

be is used as a tools to inform investors and other stakeholders about counsels performance. However, accounting standards permits perplexity to use judgment in monetary spread overing methods for some accounts as they have best knowledge of its concern so it can withdraw accounting alternatives that suit their business. With ability to choose its preferable reporting methods, estimates and disclosure, this flexibility creates opportunity for managers to distort stipend in which they adopt accounting methods that do not truly reflect firms pecuniary status (Healy and Wahlen, 1999). In addition, due to the fact that counselling has better glide slope to firms business legal proceeding and operations than stakeholders do and auditing and monitoring system ar not always effective, these lead to an information asymmetry problem which increases earnings management opportunity. For example, they can alter some information and do not disclose all the information to the stakeho lders. This essay will first let on the definition of earnings management and its evolution. Then, the proxies used to detect earnings management will be illustrated. Next, the motives for earnings management and its effect on financial reporting process will be discussed. Subsequently, it will turn to the trespass of debt financing on earnings management. Finally, this paper will examine the factors that whitethorn constrain the degree of earnings management. Definition of earnings management and its evolution Many researchers has given different earnings management definitions. For instance, Healy and Wahlen (1999,p.368) states that Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial repor... ...orts (Houqe et al., 2012) Also, the adaptation of widely-used accounting standards, for example, IFRS, may help foil management from manipulating financial information and, therefore, improve the quality of earnings because much(prenominal) standards require managers to provide a true and fair view of its report and may help reduce the earnings management activities. Houqe et al. (2012) conclude that the acceptation of mandatory IFRS increases the quality of earnings in the countries that provide strong protective cover for investors. However, there is some controversy if accounting standards would reduce earnings management. Tendeloo and Vanstraelen (2005, cited in Houqe et al., 2012) and Lin and Paananen (2009, cited in Houqe et al., 2012) find that after adopting IFRS, firms in Germany recorded more discretionary accruals and those accruals are lowly-correlated with cash flows.