Identifying and Ranking of Causal Conditions and Strategies of Earning Management in Banking Industry of Iran

The irreplaceable role of banking system as a strategic principle for implementing economic policies, the presence of financial crisis in recent decades in banking industry, the bank-based economy in a country, the major role of financial reporting in providing useful information to stockholders and its primary focus on income, and also the prevalence and powerful consequences of earning management allow accounting studies to survey banking industry. Due to the lack of qualitative studies, the paper aims to identify and rank incentives and tools for earning management in this industry. The methodology of this research is Fuzzy Delphi and Fuzzy Analytical Hierarchy Process using interview and questionnaire. For this purpose, 15 experts in this industry were interviewed; then, the questionnaires of Delphi and pairwise comparisons were given to 23 people who were active in preparation, analysis and auditing of financial statements of banks. The results showed that the effective causal conditions on earning management are as follows, respectively: factors based on the constant concern, human measures and personal profit, sufficiency and quality of standards and principles, and pressure of legal environment. Furthermore, the strategies of this phenomenon are as follows, respectively: real earning management, information-presenting management and accrual earning management. The analyses show that incentive of bank survival, the special managerial incentive, quality of accounting standards and legal incentive are the major influential factors in the earning management; also, the major tools for earning management in banking industry of a country include: management of transactions in securities, the way of identifying deposit interest and loan loss provisions. This information could be useful for investors, The Central Bank, standard setters, inspectorate and auditors in performing effective and efficient auditing.