Manipulation of Earnings through Correction of Prior Period Errors (AASB108): An Empirical Test

Amanda Carrol; Gregory Laing

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Manipulation of Earnings through Correction of Prior Period Errors (AASB108): An Empirical Test

Journal article

Open access

Peer reviewed

Manipulation of Earnings through Correction of Prior Period Errors (AASB108): An Empirical Test

Amanda Carrol and Gregory Laing

e-Journal of Social & Behavioural Research in Business, Vol.7(1), pp.16-38

2016

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Abstract

Business and Management

Cognitive Sciences

prior period errors

AASB108

management performance incentives

manipulation of earnings.

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.

Details

Title: Manipulation of Earnings through Correction of Prior Period Errors (AASB108): An Empirical Test
Authors: Amanda Carrol (Author) - University of the Sunshine Coast - Faculty of Arts, Business and Law
Gregory Laing (Author) - University of the Sunshine Coast - Faculty of Arts, Business and Law
Publication details: e-Journal of Social & Behavioural Research in Business, Vol.7(1), pp.16-38
Publisher: Australian Business Education Research Association
Date published: 2016
ISSN: 1838-8485
Organisation Unit: University of the Sunshine Coast, Queensland
Language: English
Record Identifier: 99450421602621
Output Type: Journal article

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