Corporate Governance and Earnings Management

Question: Discuss about the Corporate Governance and Earnings Management. Answer: Introduction Corporate governance is perceived to be a system whereby we direct and control corporations. On the other hand, there is the issue of earning which is a vital issue for firms. This is because of its ability to summarize the performance to huge diversities uses. Hence, this makes earnings management become a critical factor in the financial market because of working with certain accounting strategies that show income declared in the form of natural look. Therefore, the overall motive behind this proposal is showing the impact of corporate governance earnings management based on Jordan case study. Statement of Need Hence, the governance structure is tasked with the process of distributing rights and duties among the participants in corporations thus they include stakeholders, managers, directors, creditors and regulators (Lowy, 2003). Therefore, corporate governance is considered to be a tool that protects and guarantees investors right of their money. Therefore, earnings management in many instances takes place when managers use the judgments in the financial reports and transaction structure to alter financial data with aim of misleading stakeholders about the underlying economic performance occurring in the company. Based on the above discussion the main idea here is getting to understand the effects of corporate governance earnings management case study Jordan. Goals and Objectives In most instances managers can be opportunist in manipulating of accounting reports through management accruals. But, Beck (2013) argues that normal accruals arise in ordinary course of business and is unlikely to reflect on managerial opportunistic behaviour. Therefore, any instance of manipulation is most likely to be regarded as abnormal accruals as found in Jordanian companies. Research done by Habbash (2010) examined empirical impact of corporate governance characteristics in regards to earnings quality, which was measured by discretionary accruals, and earnings management based on discretional accruals of Jordanian financial sector in 2007-2012. The results of Habbash (2010) indicate that financially Jordanian firms have less than four members in the auditing committee. Further analysis must be done to show that the audit committee size possesses a negative relation with the absolute discretional accruals. However, the relation that exist between audit committee size and the earnings management was indicated to be positive, thus this means that the number of directors found in the audit committee tends to be a complex issue that raises levels of earnings quality and detects earnings management. ArguÃÅ'ˆden (2011) results showed that financial Jordanian firms held more than four regular audit committee meetings annually. Hence, the results in Habbash (2010) study shows that the audit committee activity had negative relationship towards each absolute and signed discretional accrual. Hence, the need of perceiving the results to show that meeting of audit committee was effective in discussion between members and discoverers of potential error in their financial reporting which in-turn tends to reflect levels of earnings quality and discovery of earnings management. Van et al (2008) indicates that Jordanian companies have big boards size, thus this lowers the levels of monitoring and assessment of the company performance which in-turn tends to lower the levels of quality in earnings and capability in discovering earnings management. As a result, ArguÃÅ'ˆden, (2011) argues that adjusting the proportion of external directors and non executives in the board of directors and the audit committee will somehow reduce agency of conflict over the boards process. Thus, there is the need of understanding this so as to increase functioning and monitoring of the companys performance which increases the quality of earnings. Based on the above discussion the overall goal is understanding if the impact of corporate governance earnings management was adverse to Jordan, and if so the objective will be providing recommendations on how to deal with such issues. Method and Strategies Here, the main idea is solving issues that arise from corporate governance earnings management in Jordan case. Therefore, there will be use of both primary and secondary sources in providing recommendation on the impact of corporate governance and earnings management in Jordanian Companies. Plan and Evaluation The main set out plan in evaluating this proposed study will be comparing the firms previous performance and the current performance; there will also be use of other firms who have used the proposed solution to the problem to understand if the recommendations will be effective. Budget The budget for this study is not yet estimated because of emerging uncertainties that arise when developing the project. Therefore, for now the current estimates cant be done. References Idowu, S. O., In Caliyurt, K. T. (2014).Corporate governance: An international perspective. Beck, M. (2013).Understanding risk: Recent contributions from the journal of risk and governance. Habbash, M., University of Durham. (2010).The effectiveness of corporate governance and external audit on constraining earnings management practice in the UK. University of Durham. Van, F. R. A. I., Ang, J. S., Sudarsanam, P. S. (2008).Corporate governance and corporate finance: A European perspective. London: Routledge. Lowy, M. E. (2003).Corporate governance for public company directors. New York, N.Y: Aspen. ArguÃÅ'ˆden, R. Y. (2011).Keys to governance: Strategic leadership for quality of life. Basingstoke: Palgrave Macmillan.