Abstract:

Earnings management is one of the most challenging, debated, controversial and at the same time the most promising topics in finance and financial management. As it follows from the term itself, the subject is a profit, which presents a source of valuable information needed for the future decision making of the users of the financial statements in order to achieve stable and predictable financial results. However, the informational value of earnings becomes questionable at the moment, when we realize, that managers of companies (or other internal employees) have not only the motivation but also the possibility to implement, to a certain extent, their own judgements and subjective estimations in the process of the preparation of financial statements, which in order to satisfy their own needs or the corporate needs lead to an opportunistic management of the reported earnings. Thus, the main objective of the paper is to assess the ability of chosen earnings models – Jones model and modified Jones model – in the Slovak automotive industry and identify, which of them reflect the country specificities more appropriately. Based on the results of the analysis, we consider the original Jones model the most effective in detecting the earnings management in conditions of the automotive industry of the Slovak Republic.