DETECTION OF EARNINGS MANAGEMENT - A PROPOSED FRAMEWORK BASED ON ACCRUALS APPROACH RESEARCH DESIGNS

The scope of this theoretical research is to outline recommendations for improving the complex process of detection of accounts manipulation. In this respect we turned to the previous literature and assessed empirical studies in order to be able to develop a robust model for understand the process of detection for accounts manipulation and further to ease the path of detection by proposing as we stated above a theoretical framework in this respect. Since there is a constant conjecture between cause and effect we are able to assert that two direction of research can be identified and both can explain further the roots for limiting earnings management since its detection can be much easier approached: the event that can represent the root for accounts manipulation and the normal trend considered for a certain company related to the accruals level and economic trend. In the end if we know the cause we can interpret the event and combat its appearance. But when this kind of research appears, another question springs. Should we fight earnings management practices? Clikeman (2003:78) sensed that by using those practices companies are walking on a very slippery slope where minor accounting gimmicks become more and more aggressive until they create material misstatements in the financial statements. So, the recourse to such practices creates a stake that is not negligible. The users of financial statements are misled when making decisions based on manipulated accounting numbers. To a certain extent, the existence of earnings management distorts the usefulness of financial statements, and in this respect the process of detecting it can be regarded both as being important and challenging. Our proposal is not related to a technical process of detecting earnings management as typical empirical studies found in the literature and more than that we open a new stream of research based on understanding the forms of manifestation for accounts manipulation, getting to know the antecedents, the features, the possible interactions among antecedents and current features. Based on the recommendations found in the literature the eradication of manipulative processes is next to impossible but the limitation can be a reality. In this respect the researchers recommend controlling the conditions and motives that increase the likelihood of its presence and also developing stronger tools to detection.