Examination on the Ethics of Earnings Management

Ethics has an important role in accounting and this discipline has "Codes of Eth¬ics" such as other disciplines. On the other hand, since many areas of accounting including earn¬ings management requires ethical judgments, the purpose of this study is to examine the role of ethical judgments in earnings management.

The questionnaire was used for gathering the data, and it was distributed among 200 undergraduate accounting students. This questionnaire consisted of six hypothetical scenarios in-volving specific intent and treatment of management earnings in any of them. Earnings manage-ment intent represents an independent variable with two treatment levels opportunism (individual intent) and efficient firm contracting (company intent). The manner of earnings manipulation represents the second independent variable with three treatment levels accounting method change, accounting estimate change, and operating change. To test the hypothesis, Two Way ANOVA and paired t-student test was used.

According to the founded results, the intent of management earnings (P-Value= 0, F= 32.676) and the treatment of management earnings (P-Value= 0, F= 32.676), at 99% confidence level, have significant influence on ethical judgment. Hence, we find support for both proposi-tions.

This study found that the intent of the earnings management matters. That is, sub-jects find that managers engaging in earnings management that was deemed opportunistic or selfish were considered more unethical (or less ethical) than earnings management behavior aimed at increasing firm contracting efficiency. Additionally, the study found that the method of the manipulation was also important. Accounting estimate manipulations was considered the least ethical followed by economic operating decisions. Changes in accounting method were consid-ered the least unethical.