Abstract:

This article discusses about earnings management and accruals. Earnings management is legal management of profit within the legal framework, but it should be noted that earnings management involves creative accounting techniques, the use of which may call into question the true and fair view of the financial performance of the business. In practice, there may be opportunities to influence accounting information through the use of different methods and techniques, as a result of which the financial statements lose their function and thus misrepresent the accounting data. Because accruals are used as a key indicator that shows the performance of a business, it can be used to make the business performance look different from the actual position of managers. One of the basic questions is why do managers decide to use earnings manipulation concerning accruals. The first consideration is the interest of users of financial statements in how to interpret discretionary accruals and how to increase these numbers and how to reduce the reported earnings. The second aspect is the tendency of standards makers to take measures to limit the ability of managers to exercise discretion in the reporting process. This decision is based on the assumption that the exercise of their accounting discretion is carried out by managers for their benefit. The main aim of this paper is to approach the theoretical background of earnings management and accruals and point out the relationship between them.