Trend Analysis in Real Earnings Management and its Effect on Financial Statements: A Case of Nigerian Financial Institutions

Abstract

A well designed and implemented international financial reporting standard is expected to build confidence on credibility of quality of financial statements to investors and other stakeholders. The purpose of this paper is to understand the trends of real earnings management and its effect on financial statements in Nigerian financial institutions. Secondary data are sourced from the financial statements of the sampled financial institutions at the Nigerian Stock Exchange Market. The trend in real earnings management needs to identify the causes for any significant changes in the sector. The dependent variables; abnormal cash flow
from operation, discretionary expense and cost of sale are utilized as a measure of real earnings management and the study sampled of 45 financial institutions, using descriptive analysis to analyzed the trend for the period of 2018 – 2023. The findings also revealed an increasing trend of real earnings management during research period. The study concluded that stakeholders including the investors, financial analysts and regulators would examine behavior of corporate manager thorough analyzing the comparative earning management trends of various time. The study recommended that, Regulatory bodies (CBN, NDIC, and SEC)
should empower audit committee to challenge corporate managers on operational decisions that appear to prioritize short-term targets over long-term value.