Is the earnings management ethical practices or an economic justification for corporate management in the Iraqi environment? : Literature review

Abstract

A number of joint-stock companies listed in the Iraq Stock Exchange have been exposed to bankruptcy and great losses, especially in the banking sector, which is one of the most important and largest sectors in the market, which prompted the Central Bank to place guardianship over a group of banks that practiced fraudulent activities represented in earnings management. This study aims to evaluate the literature review in the Iraqi environment to clarify whether earnings management is a bad ethical practice or an economic justification for corporate management. Therefore, the Iraqi studies were selected for the period 2011-2021, and through our analysis of literature review, we concluded that the practices of earnings management are unethical practices aimed at the management’s attempt to achieve economic benefits, violating the instructions of the accounting system and the directives of the supervisory body for joint stock companies, taking advantage of this flexibility in the application of accounting principles and the absence of the authority of international financial accounting standards and financial reporting standards during that period. Although there is a lot of controversy about whether the practice should be accepted for economic reasons that management justifies as a necessary good practice to address economic fluctuations rather than a bad one, the second aspect about earnings management is that it is a bad ethical practice, whereby earnings management reduces the quality of financial reporting. Nevertheless, this study found the existence of earnings managementpractices in companies through an academic discussion of literature reviews that extended from the year 2011-2021 in the Iraqi environment.