Accounting Conservatism and Earnings Management: Further Insights from Nigeria

Ganiyu A. Fatai, Kenny A. Soyemi & Joel A. Okewale

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Abstract

Consequent upon the paucity of studies on earnings management and accounting conservatism, especially in a developing economy like Nigeria, alongside mixed results noticeable in the few studies that exist, this study examined the influence of accounting conservatism on occurrence of earnings management among 50 quoted non-financial firms, spanning 9 years, from 2014-2022. These firms were selected using a stratified sampling technique. Data analysis was conducted using descriptive and inferential statistics, with hypotheses tested at a 5% significance level. The results revealed the existence of earnings management and the practice of accounting conservatism by sampled quoted firms. Further, accounting conservatism displayed a positive and statistically significant association with the duo of discretionary accruals and real earnings management, accounting for 34% and 52% variations in discretionary accruals and real earnings management, respectively. Implicitly, accounting conservatism encourages the occurrence of earnings management, thereby reducing financial reporting practices. The study recommended the discontinuation of accounting practices of conservatism, or at best, reduced to the barest minimum, to improve the quality of financial reports.

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