Earnings management through accrual-based analysis : Case study: Stockmann Oy Abp 2005-2014
Luong, Lua (2015)
Luong, Lua
Arcada - Nylands svenska yrkeshögskola
2015
All rights reserved
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2015060211923
https://urn.fi/URN:NBN:fi:amk-2015060211923
Tiivistelmä
Earnings management emerges from accounting discretion that managers allowed to de-cide for company. Earnings management is extremely hard to detect and there has not been an ultimate method to detect earning management thoroughly. The thesis seeks to provide general knowledge about earnings management and attempts to apply certain theories and accruals models proposed by researchers (e.g. Jone 1991, Spohr 2004 and Friedlan 1994) to the case study of Stockmann Oy Abp. The literature review is collected from books and major studies (e.g. articles, journals, and working paper) by experts from the field. In the case study, the author decided to conduct an analysis to detect signs of earnings management of Stockmann Oy Abp during financial year 2005-2014 through accruals-based analysis. First of all, the author looks into total accruals and discretionary accruals level over 10 year period. Then based on cash flow analysis, the author reasons her choice of further analysis of financial year 2007-2010.
The result showed that total accruals of Stockmann fluctuated widely over 10-year peri-od, and discretionary accruals estimation indicated that during fiscal year 2006-2014, managers have deliberately increased/decreased earnings. In addition, from cash flow ap-proach, financial year 2007-2010 were bought into further analysis. However, detailed break-down of financial statements showed that the divergence in trends of operating cash flows and net income mostly was the result from expansion projects company em-ployed. In addition, manager‟s incentive to deflate earnings is not strong enough to justify author‟s suspicion. In a nutshell, the author could not find any indication of earnings management through accrual analysis based on information on consolidated financial statements provided by the company. However, the result contains some limits and is open to further discussion.
The result showed that total accruals of Stockmann fluctuated widely over 10-year peri-od, and discretionary accruals estimation indicated that during fiscal year 2006-2014, managers have deliberately increased/decreased earnings. In addition, from cash flow ap-proach, financial year 2007-2010 were bought into further analysis. However, detailed break-down of financial statements showed that the divergence in trends of operating cash flows and net income mostly was the result from expansion projects company em-ployed. In addition, manager‟s incentive to deflate earnings is not strong enough to justify author‟s suspicion. In a nutshell, the author could not find any indication of earnings management through accrual analysis based on information on consolidated financial statements provided by the company. However, the result contains some limits and is open to further discussion.