Abstract:

The article deals with the issue of earnings management in close relation to intragroup transactions, transfer prices and respect of the arm's length principle. The article primarily analyses theoretical bases, including the Slovak legislation governing the transfer pricing and financial reporting. Any legislation defines the limits of legality/illegality of the pricing of transactions between related parties, de facto degree of legality of managerial decisions within earnings management. Earnings management has a range of tools and measures applicable to stakeholder´s interest, including tax management. In this context, authors built on the assumption that earnings management generally "works" with the profit parameter with a view to obtaining various benefits. In the context of intragroup economic transactions, a company tries to achieve tax savings that would not otherwise obtain under other circumstances. Then, in the sense of this objective, a company implements a pricing policy of such transactions that also has an impact on its financial indicators presented in the financial statements. Thus, in the context of the article, transfer pricing will be perceived as a possible means of managing earnings in the context of transactions of related entities. The analysis of the theoretical background and legal status is a prerequisite for understanding the functionality of transfer pricing in connection with earnings management and at the same time a prerequisite for empirical research.