What is it about?

The purpose of this paper is to examine whether the contracting incentives (i.e. bonus plans, debt covenants, political costs hypotheses), and income smoothing can explain accounting choices in an emerging country, Egypt

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Why is it important?

The findings of the study should be of substantial interest to regulators and policymakers. The results implicitly contribute to the ongoing argument in relation to the optimal flexibility permitted by standard setting and the argument that tightening the accounting standards and mandating International Financial Reporting Standards are likely to improve reporting quality and reduce opportunistic earnings management. The results reveal that many of the weaknesses related to corporate reporting in emerging countries may result from the inadequate enforcement of the law and the weak legal protection of minority shareholders. The results also highlight the crucial role of understanding the reporting incentives, which is mainly shaped by institutional and market forces and the legal environment, in explaining accounting choices.

Perspectives

Writing this article was a great pleasure as it has co-authors with whom I have had long-standing collaborations.

Dr Mohamed Khalil
University of Hull

Read the Original

This page is a summary of: Efficient contracting, earnings smoothing and managerial accounting discretion, Journal of Applied Accounting Research, May 2014, Emerald,
DOI: 10.1108/jaar-06-2012-0050.
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