Impact of Earnings Management on Tone of Financial Reporting in Iranian Accounting System

The purpose of this study is to assess the effect of earnings management on tone of financial reporting in Iranian accounting system. The tone is characterized by the ratio of positive and negative words contained in the annual financial reports. Earnings management is feasible using two methods of real and accrual-based. In this research, the earnings management has been tested using three models (Jones, Modified Jones and Caznik) and real earnings management using Roychowdhury model. The present research sample includes 119 companies accepted in Tehran Stock Exchange for years 2010 to 2016. To test the research hypotheses, multivariate regression has been used. The results of the research show that the accrual-based earnings management calculated based on the models (Caznik and Modified Jones) has a significant and negative effect on the pessimistic tone. In other words, it increases pessimistic tone by reducing the accrual-based earnings management and the opportunistic behavior applies to the financial reporting tone of the managers to divert the perception of the users of information. However, calculated accrual-based earnings management of Jones model and real earnings management have no significant effect on the pessimistic tone.