THE ROLE OF EARNINGS MANAGEMENT AND TAXATION IN FINANCIAL REPORTING QUALITY

Akwapoly Journal of Communication and Scientific Research (APJOCASR)

Abstract

When a company faces pressure to manipulate its earnings to meet predetermined targets, it may resort to earnings management practices. Depending on the company's size and financial circumstances, earnings management can take various forms, including accrual accounting, capitalization constraints, and the establishment of reserves. Employing earnings management techniques enables companies to present more consistent profits on a monthly, quarterly, or annual basis by mitigating fluctuations in earnings. This study investigated the interplay between Earnings Management and Taxation in Financial Reporting Quality. Through an exploratory research design, the findings suggest that while companies may utilize earnings management to optimize tax liabilities, these practices can negatively affect financial reporting quality. And upholding the integrity and accuracy   of   financial   reporting   is   paramount   for   a company's long-term success, reputation, and stakeholder relationships. The paper noted that although tax avoidance through earnings management is generally permissible, it can raise ethical and corporate governance concerns, becoming a topic of debate and scrutiny. Regulators and tax authorities consistently aim to close loopholes and establish regulations to deter excessive earnings management that could erode tax revenues or mislead investors. Thus, the paper recommends that companies prioritize transparency and adhere to accounting standards to ensure the precision of their financial statements and tax filings, thereby averting the adverse consequences of earnings management.