Volume 12 No. 2, December 2013
MANAGEMENT AND ACCOUNTING REVIEW, VOLUME 12 NO. 2, 2013
EARNINGS MANAGEMENT AND EARNINGS DEVIATION AFTER FRS 3
Mohd Fadzli Ahmad1
Nor’Azam Mastuki2
1Commerce Department, Politeknik Sultan Azlan Shah,
Perak, Malaysia
2Faculty of Accountancy,
Universiti Teknologi MARA, Malaysia
Nor’Azam Mastuki2
1Commerce Department, Politeknik Sultan Azlan Shah,
Perak, Malaysia
2Faculty of Accountancy,
Universiti Teknologi MARA, Malaysia
ABSTRACT
The purpose of the study is to examine earning managements’ behavior encircling the change of the goodwill treatment upon the adoption of FRS 3 Business Combination. By using 422 companies listed on the Main Market of Bursa Malaysia in 2005 and 2006, this paper uses goodwill impairment as a proxy for earnings management by comparing the deviation before and after adoption of FRS 3 Business Combination. The study finds that impairment of goodwill is much greater after the implementation of the standard as compared to pre adoption years. The paper is limited to cross sectional research design using 2006 to 2010 financial statements of publicly listed firms from the Main Market of the Bursa Malaysia to test the goodwill impairment write downs.
The findings of the study could be used in practice to provide insights on whether the goodwill impairments have been manipulated by public listed companies in Malaysia to manage earnings upon the adoption of FRS 3 Business Combination. The paper is distinguishable from previous study as it explores empirically the earnings deviation and its relationship to goodwill impairment and earnings management.
Keywords: Goodwill, Earnings Management, Earnings Deviations, FRS 3 Business Combination, Malaysia