Purpose: This research examines whether the likelihood of a company reporting a prior period error under AASB 108 can be explained by earnings management behaviour. Design/Method/Approach: A model of independent and control variables is developed and tested. The sample consists of all companies listed on the Australian Securities Exchange Limited (ASX) during 2008 that reported prior period errors under AASB 108. The research design employs a matched pair, case-control method, where each firm-year containing a reported prior period error is treated as a case. Three types of statistical analyses were performed on the data: descriptive and correlational analysis, and multivariate testing of the model using multiple regression. Findings: CEO cash bonuses was found to be positively associated with prior period error corrections that reduced previously overstated earnings. Four of the independent variables were found to contribute significantly to the model. Originality/Value: The findings from this study provide useful insights into the potential for opportunistic behaviour concerning the misuse of AASB 108 in the treatment of prior period errors to manipulate current period earnings.
e-Journal of Social & Behavioural Research in Business / Vol. 7, No. 1, pp.16-38