'Creative Accounting': A Legal Approach to Earnings Management

Performance-based remuneration theoretically is an effective way of aligning the interests of company management with those of shareholders. However, 'earnings management' is a phenomenon that has been well-documented by accounting researchers. Empirical studies suggest that corporate officers who are subject to performance-based remuneration may manage company accounting figures to improve their remuneration. In a pre-International Financial Reporting Standards context, this work contends that such practices are inconsistent with the duties of loyalty to which these officers are subject, and concludes by identifying a corporate governance role for legal advisers in light of such conduct.

Autorentext

Eu-Jin Teo is a Senior Lecturer at The University of Melbourne, a Chartered Tax Adviser and an Accredited Specialist in Administrative Law. Sarah Hinchliffe is a Visiting Professor of Law at the William and Mary School of Law and a Visiting Scholar at the Harvard Law School, the William S Boyd School of Law and at Boston University.