Truthfulness in Accounting: Analysis of Earning Manipulation in Pakistani Firms.

26 Pages Posted: 3 Sep 2020 Last revised: 23 May 2022

See all articles by Danish Ahmed Siddiqui

Danish Ahmed Siddiqui

University of Karachi - Karachi University Business School

Pervez Ahmed

Karachi University Business School

Date Written: August 26, 2020

Abstract

The purpose of this study is to investigate Accounting Truthfulness, here we use two terms Manipulators and Non Manipulators, the firms which manipulate their accounting information to attract their stakeholders are called manipulators. Therefore, our study regards the manipulation of earnings as an obstacle for the truthfulness and a potential factor for the destabilization of companies. This research develops a model for detecting earnings manipulator firm and non-manipulating firms using financial statements ratios in a simple of 10 PSE 100 Listed companies. We took the information from the Annual Report of the firms from 2014 to 2019 for finding ratios. We analyzed the information and find out the M-Score of these firms based on the M-Score we classified manipulators and non-manipulators. We then compare the M-Score of the two groups. M-Score is greater than -2.22 the firm is Manipulator, M-Score is less than -2.22 firm is Non-Manipulator, This Study shows that 12 firms are manipulating their accounting information out of 40 firms the % of The manipulation is 30%. GMI (Gross Margin Index) and AQI(Assets Quality Index) are the most dominating ratios. The findings of the study can be used by investors for making their decision. Also regulatory bodies for enforcing policy and monitoring. It can help all stakeholders of the firm for making their monetary relationship with the firm.

Keywords: M-Score, Financials Data, Manipulator, Non Manipulator, Accounting Information, Ratio analysis, Earning Manipulation, Secondary Data, Distributed Analysis, Independent t analysis, Manipulating Firms

Suggested Citation

Siddiqui, Danish Ahmed and Ahmed, Pervez, Truthfulness in Accounting: Analysis of Earning Manipulation in Pakistani Firms. (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=3681332 or http://dx.doi.org/10.2139/ssrn.3681332

Danish Ahmed Siddiqui (Contact Author)

University of Karachi - Karachi University Business School ( email )

University Road
Karachi, Sindh 75270
Pakistan
3333485884 (Phone)

Pervez Ahmed

Karachi University Business School ( email )

Karachi
Pakistan

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