Introduction Studies of Obscure of Accounting

Corporate governance collapse has characterized the financial scandals of last twenty years. The scandals at Enron Corporation, Tyco International, and WorldCom, to name but a few, are the biggest note. Accounting information had been critically evaluated concerning its credibility by the corporate financial scandals globally and locally. The relevance of the research topic is related to the emergence of a number of new challenges for the financial accounting system along with unresolved accounting and auditing problems that have existed for a long time.

The paper begins with the premise that earnings quality reflects a company’s current and future performance and its intrinsic value. Instead, the earnings management is the manipulation of earnings by altering real transactions and accounting choice or IFRS transition for their first adoption (Dechow and Ge, 2003). This study reviews relevant literature to reenact the significance of the qualitative assertions of accounting in making judgment on accounting estimates, policies and values. This research explains how information system operates in the audit on the reliability of accounting information and allows managers to obtain high-quality accounting information and earnings manipulation detection by reducing information risk. There are many papers on the research suggested using information system in auditing and accounting, but it is still not clear to show to earnings manipulation detection and reduces information risk.

Standard setters, regulators, and auditors generally view earnings to be of high quality when they conform to the spirit and the rules identified in GAAP inspired to “true and fair view” and “fair value accounting”. When managers manipulate earnings, they are intentionally trying to hide current performance; the result is that current earnings are not indicative of future performance or intrinsic value (Schipper and Linda, 2003). The aim of the profession in the accounting information system is to provide different user with accurate financial information to make correct decisions. Information systems captures, manipulates, and processes economic events to assists decision-makers in planning, controlling and organizing. Unfortunately, accounting information systems may fail to provide the desired results because they may be biased, not timely and manipulated with creative practices. There is a strong tendency that this practice will lead to presenting financial statements that may not be genuinely true and fair, consequently auditors’ opinions are considered biblical, it is no supreme. So, this system help auditor in making better decision and increase the quality of accounting information and decrease the manipulation such as earning management.

The research paper is organized as follows. First paragraph concerns institutional for Fraud Audit & Dispute for Forensic. The second paragraph discusses the literature of Reporting Package Management. The following section provides a detailed description of the research method. Then, we present and discuss the results of our analyses. Finally, the study concludes with theoretical, managerial and practical implications for the implementation of Reporting Package Management.

Institutional framework: Fraud Audit & dispute for Forensic

Note: Source: Our Elaboration

Note: Source: Our Elaboration

Fraud is an intentional act meant to induce another person to part with something of value, or to surrender a legal right. It is a deliberate misrepresentation or concealment of information in order to deceive or misled. But in each instance, fraud involves deception. Someone knowingly lies in order to obtain an unlawful benefit, or an unfair advantage. Instances of abuse are not fraud or illegal act, but they are harmful, and they need to be minimized.

Fraud is typically regarded as a breach of the law or a set of rituals of verification. The goals of fraud and earnings management are similar, but the purpose of each differs, with the former occurring outside of GAAP and the latter occurring within it. IASB provides guidance on achieving this overarching purpose by providing a set of rituals of verification for evaluating financial statement line. Using qualitative accounting concepts, managers may make judgments about accounting statistics guided by the highest standards of trustworthiness.

The classification framework for financial fraud is suggested in based on the financial crime framework of the U.S. Federal Bureau of Investigation (FBI), which is one of the established frameworks for financial fraud detection. A brief description of the conceptual framework with references is the six data mining application classes: classification, clustering, outlier detection, prediction, regression and visualization.

This framework considers specific characteristics of fraud detection techniques for financial accounting fraud. The data mining technique for the pattern evaluation are: regression, neural networks, Bayesian Belief Network, Naïve Bayes, Nearest Neighbour, fuzzy logistic, decision tree, generic algorithm and expert system. The performance evaluations are: metrics and error rate.

Data mining analyses the huge volumes of transaction and billing data and seeks out patterns, trends and cluster that reveal fraud. The main steps for implementing fraud detection its technical issues are shown in Table 1.

A typical detection approach consists in outlier detection where the non-fraudulent behavior is assumed as normal and identifies outliers that fall far outside the expected range should be evaluated more closely (Table 2).

Literature Review

Table 3: Earnings Management Practices

Note: Source: Our Elaboration

Table 4: Empirical Methodology to Detecting Earnings Management Practices

Note: Source: Our Elaboration

Regulators, standard setters, academics, technicals, professionals and practitioners have expressed concerns that firms use the “veil” of conservatism accounting to manage earnings (Ahemed, Billings, Morton and Stanford-Harrins, 2002). Although there have been repeated claims that conservative accounting facilitates earnings management, there is limited empirical evidence on this matter (Ahmed and Duellman, 2007).

Due to business globalization, increasing competition and the rapid growth of information technology, the issue of how to integrate the information of business environments to achieve a more efficient form of operation, lower operating costs and achieve greater competitiveness depends on the role of managers (Beheshti and Beheshti, 2010). The need to adopt Enterprise Resource Planning (ERP) systems with software and hardware equipment results from the technology information requirements of enterprises as well as the desire of managers to strengthen enterprise competitiveness (Mishkin, 1983).

In the literature (Devine, 1963), ERP applications are discussed for various countries, for various industries, and for various sizes of enterprises. Because ERP system investments are expensive and time-consuming, scholars (Fryling, 2010) have analyzed the factors affecting ERP implementation success from various perspectives.

However, from the point of view of managers, assessments of the influence and effectiveness of ERP systems seem to lack of objective methods without the Reporting Package Management.

The research question to which, with this work, you want to answer can be articulated in the following way:

${\text{RQ}}_1$: What is the level of earnings quality provided by the companies for the “IT Maintenance System”?

${\text{RQ}}_2$: What factors influence the quality and performance of the Information System?

The data of importance levels are used to calculate the relative weights of measures. We use these data and the following equations to determine the performance improvement levels of System Quality ($J_1$), Information Quality ($J_2$), System Use ($J_3$), User Satisfaction ($J_4$), Individual Impact ($J_5$), Organisational Impact ($J_6$), and Composite Performance after implementing ERP systems (Gunasekaran, William, and McGaughey, 2005).

The performance improvement level of the $j$-th dimension for the $i$-th respondent’s company:

$w_{jk}$, the average importance level score of the $k$-th measure of the $j$-th dimension as perceived by $N$ respondents, as shown:

where,

$w_{ijk}$ = The importance level score (1 to 7) of the $k$-th measure of the $j$-th dimension as perceived by the $i$-th respondent,

$P_{ijk}$ = The performance improvement level score (1 to 7) of the $k$-th measure of the $j$-th dimension for the $i$-th respondent’s company,

$l_j$ = The number of chosen measures for the $j$-th dimension.

The composite performance improvement level for the $i$-th respondent’s company:

where $P_{ij}$, $w_{jk}$, and $l_j$ are defined as above.

Since ERP systems can enhance the instant output of enterprise information, as well as integrate information and thereby upgrade the quality of decision-making, they further strengthen the decision-making capacity of enterprises. It is therefore expected that there will be a negative relationship between the performance of ERP systems and earnings management, such that the higher performance of ERP systems will entail a lower degree of earnings management.

Research Design

Note: Source: Our Elaboration

Table 6: Audit Template for sample identification

Note: Source: Our Elaboration

Data are the foundation of earnings management practices. Traditionally, the role of data management accounting in organizations has been limited to providing information to support decision-making. Driven by advances in IS, the modern understanding of data management role is more extensive and tends towards audit models, consultation, and interpretation. Nowadays, (IS) constitute the primary source of data management.

Below we present the research hypotheses of this paper.

H₁: Positive association between ERP performance and Internal IT Controls for low level of earnings management practices.

H_a: We find that a higher ERP performance correlates with a lower level of earnings management, whereas a lower performance of ERP correlates with a higher level of earnings management.

H_b: Internal IT Control knowledge is positively associated with IS quality for low level of earnings management practices.

H₂: Positive association between ERP Quality and External IT Controls for low level of earnings management practices.

H_a: A higher level of System Quality correlates with a lower level of earnings management, whereas a lower level of System Quality correlates with a higher level of earnings management.

H_b: External IT Controls knowledge is positively associated with IS quality for low level of earnings management practices.

Earnings management practices does not refer to the behaviour of management who, in absolute good faith, tries to best represent the company situation in the financial statements; in order to talk about creative accounting it is necessary that the effects of accounting discretion are assessed ex ante by the acts directors’ of the financial statements and that the adoption of certain management accounting decisions derives from the achievement of certain accounting effects that influence, in turn stakeholders’ behaviour (Healy and Wahlen, 1999).

Earnings management practices are of three types (Table 3). The most used of the empirical methods are classified according to three main approaches (Tables 4 and 5).

We used the FBI framework to identify the verification sample (Table 6).

Results

With the risk of insider threats on the rise, organizations should deploy the policy of least privilege and Segregation of Duties (SoD) as a safeguard against malicious exposure of information from disgruntled employees. SoD consist of a process in which request, and approval are divided into two separate roles or duties. This will ensure that employees can not commit fraud and cover up their tracks. Monitoring and auditing tools should be put in place to assist in identifying and preventing privilege creep.

We conducted a qualitative and quantitative analysis of the companies included in the sample by examining their mandatory corporate governance reports (Table 7).

Note: Source: Our Elaboration

Subsequently, we analyzed the sample’s descriptive statistics regarding the relationship between earnings quality and the ERP index. To highlight the study’s findings, we then introduced a regression analysis focusing on eight representative units from the examined sample (Table 8 and Graph 1).

Table 8: Descriptive Statistics for total sample

Note: Source: Our Elaboration

Graph 1. Regression Analysis for 8 representative observations

Source: Our Elaboration

Conclusion

Table 9: Overall conclusion analysis of EM reduction

Note: Source: Big Four Experience

The value of information increases as the quality of financial statements is enhanced. To the most significant degree, efforts should be made to improve qualitative qualities (Quattrone and Hopper, 2006).

Earnings management practices concern “the organization setting of accounting setter, whether made in the process of accounting and preparation of the financial statements, or referring to the adoption of International Financial Reporting Standards” (Watts and Zimmerman, 1986). It is an instrumental use by the top management of the accounts and the financial statement that arises from the desire to highlight, in the eyes of the stakeholders, the aspects that most interest them, in order to represent externally a situation that does not correspond to a faithful representation (Gibbins, Richardson and Waterhouse, 1990).

Earnings management is the purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain (Schipper, 1989, p. 92). Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers (Healy and Wahlen, 1999, p. 368). This problem in the accounting information system have led to unethical reliance on other measures of investment decision guides provided by uncertain, risk and unpredictability of the financial market. Earnings management practices are in fact encouraged by the presence of several stakeholders, that “tend to affect the annual financial statement results, so as to obtain official income that allows to influence behaviour of a set of private and institutional interlocutor” (Givoly, Hayn, and Natarajan, 2007).

The organization settings of financial statements are, in fact, a necessary act of high administrative complexity, which cannot be based only on the application of mere technical rules, but which, on the contrary, presupposes of a more or less wide discretion which implies the evaluation of the consequences of this subjectivity (Ronen and Yaari, 2008). Certainly not for those estimated, for which it is instead necessary to resort to a more complex concept of auditability (Barth and Landman, 2008).

The estimation process involves the use of judgments based on the latest available reliable information. As these studies (Lafond and Watts, 2008), have shown, the growing trend of ERP systems is to integrate an increasing number of functions. Thus, the most profound features of ERP systems are the instant output of information and the integration of information they achieve (Singer and You, 2011). Enterprises are now able to electronically report the continuity of business activities, which were previously provided on a quarterly basis. The continuity of an immediate-time report results in more market transparency as well as fewer price fluctuations of stocks (Penman and Zhang, 2002).

Moreover, in the past, the information was made available only to investment analysts; whereas investors can currently access needed information on websites. This widespread availability of information could enhance the reliability of information. It also may reduce the occurrence of insider trading and enhance corporate governance. Therefore, we argue that earnings management decreases with the higher performance of ERP systems.

Based on the literature reviewed—both directly during sample selection and indirectly during the drafting of this study—we can demonstrate the relationship between the increase in audit fees and the reduction of earnings management practices (Table 9).

Understanding the successful adoption of information technology requires an understanding of the linkages among quality, satisfaction, and usage. This includes an assessment of user information satisfaction and information quality with the Reporting Package Management. As studies (Beaver and Ryan, 2005) have shown, an assessment based only on financial indicators that excludes other dimensions of performance, will not be able to effectively enhance the competitiveness of enterprises.